Schaeffer's Trading Floor Blog

Weekly Contrarian: Why Yahoo! Could See More Upside in the Near Term

Skepticism surrounds YHOO, despite fundamental and technical triumphs

by 1/31/2013 1:09 PM
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In a recent Bloomberg Businessweek article entitled, "Yahoo!'s Marissa Mayer Finds Some Bright Light," the author touts the success of Yahoo! Inc.'s (NASDAQ:YHOO - 19.65) freshman CEO Marissa Mayer, who has helped the company regain a foothold in a market that had all but given up on the plagued Internet issue. YHOO's fourth-quarter earnings report is a case in point, with the results revealing a better-than-expected bottom line, as well as YHOO's first positive revenue growth in four years.

The writer contends that "Mayer still has a lot of work to do," with sector heavyweights Google Inc (NASDAQ:GOOG) and Facebook Inc (NASDAQ:FB) currently dominating market share. However, the stock has grown more than 30% under her watch, and she is committed to turning the company around. In Mayer's own words, the author concludes, "The future of Yahoo will be about innovation, execution, and continued progress on a multi-year march toward growth."


On the charts, YHOO has been steadily moving higher in recent months, with the shares up nearly 35% from their most recent low of $14.59, which was tagged on Sept. 4. This impressive price action has been highlighted by the equity's 40-day moving average, which helped usher the stock to a four-year high of $20.88 last Tuesday.

Despite these technical triumphs, Wall Street remains skeptical of YHOO. In the options pits, the security's 50-day International Securities Exchange (ISE)/Chicago Board Options Exchange (CBOE)/NASDAQ OMX PHLX (PHLX) put/call volume ratio of 0.31 ranks in the bearishly slanted 55th percentile of its annual range. In other words, puts have been bought to open over calls at a slightly faster-than-usual clip during the past 10 weeks.

Elsewhere, no fewer than 21 out of 25 covering analysts maintain a "hold" or "sell" suggestion toward the stock, and the consensus 12-month price target of $21.35 is a slim 9% premium to the equity's current perch. However, it appears that some of these disbelievers are beginning to change their tune on the outperforming equity, with the stock receiving a bevy of bullish brokerage notes following Tuesday's well-received quarterly results.

From a contrarian perspective, the withstanding pessimism surrounding the uptrending security could translate into a fresh wave of buying power in the near term, should any additional upgrades and/or price-target hikes prompt a capitulation from the weaker bearish hands.

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