Wednesday, January 10, 2007

Yahoo for YHOO?

Do you for YHOO or do you YAWN?

What do you get when you start losing market share to GOOGLE? Could it be a beaten up internet giant that is undervalued or a beaten up internet giant that will remain beaten up?

According to my research, YHOO is fairly valued at around $34.00. It has found support recently at $25 and hit a 52 wk low at $23. I like this sleeping value play and here are the options that I like.

I legged into some JUL 07 27.50 Calls at 3.81/contract. Why? Because their theoretical value is at $4.20 with a .65 delta.

Those options are trading at a 33% IV level which is about the lower middle of the extremes of 25/50% levels. They look like they have been rising which coupled with a rising underlying is double whammy on the positive side.

Fundamentally, YHOO still has a large user base, still remains to be the most popular web destination on the web, still has a far-reaching global popularity, has plenty of cash for stock buybacks and potential headliner acquisitions, and with its reorganization plans unfolding there is a positive aroma in the air.

The downside is that YHOO's revenue primarily comes from search which has fallen behind Google and could see hard times in an economic recession. It has also executed poorly in launching its newest advertising platform and has lacked in acquisitions behind Google and NewsCorp's. The competition is stronger than ever from AOL, Google, Microsoft, and traditional media companies.

Having said all that, why Yahoo now? Mainly because I think that it has been awakened by the stiff competition and that it looks attractive at these prices given that it's in a bullish sector so far. Besides, I like Yahoo Finance.

Grab a vine and let me know if you are Yahooing for Yahoo or not.

2 comments:

Tucker said...

YHOO has a great bottom formation with a confirmed bullish head and shoulders pattern too. July is a good month to be long in.

Terence said...

Thanks Tucker for the technical analysis. I agree with your assessment as well. Now all we need is it to be convergent with GOOG's momentum right now.