Yahoo for Yahoo?

Dennis Biray
 


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While there is a certain argument that Google is king in terms of search engines, I like to think that Yahoo (YHOO) beats Google in all other regards. As both companies entertain the advertising business as their major source of revenue, the additional bonuses that Yahoo provides make this equity a worthy purchase. From Yahoo Finance to Fantasy Football, Yahoo controls a large portion of the market in these and other affluent areas which Google cannot compete with making Yahoo a valuable venture.

I say interesting because of the cyclical nature Yahoo seems to employ. Since Yahoo is based almost completely on advertising, revenue will come from consumers who click links directed for purchasing consumers. When the economy is near a recession, there is a lower percentage that a consumer will click a link to buy an item on a certain advertisement because of the increased potential that this consumer is out of work or controls a lower income than during periods of inflation and prosperity. Thus with little encouragement to click that link, Yahoo does not collect its amazing profits as during recession and faces lower guidance, hurting investors. While the task may seem rudimentary and miniscule, the impact upon earnings is more than marginal to say the least.

As you read this you may ask yourself why I should invest in Yahoo when there is a potential recession abroad. Excellent question. Right now I actually discourage anyone from buying shares of Yahoo for the cyclic nature that this equity utilizes. During the recession from 2001 through 2003, Yahoo dropped dramatically from near 100 points to near four points: a drop of almost 100%. However, on the flip side, during periods of growth and inflation, shares of Yahoo have increased in dramatic form as well. From its IPO date around 1997 to its peak around 2000, Yahoo grew nearly 2400% in such a short time period. You may argue that such an appreciation was during a time when the stock market was overbought in technology, look from 2003 to the present, where shares of Yahoo during this growth period have grown nearly 1200%: a very sizable gain contributing to the timely nature of the advertising business.

Yahoo also supports the fundamental credentials for its growth contributing to sizable gains during this inflationary period in terms of margins from revenue and growth. While investing and financing have been detrimental to the overall earnings, operating margins, the key to profit, has been positive and increasing every year over the past three years adding encouragement to investors. Now, while I do not suggest purchasing shares of Yahoo in this current state, I would like to remind any investor of the possible capital gains available from buying this equity right before a recession finishes. Thus, in the coming months or years as economic data supports growth again, look into buying a large capitalization stock in Yahoo, who not only supports excellent fundamentals but will sure to support high capital gains as well.

Dennis Biray presents advice on all kinds of topics ranging from finance and investing to fitness to sports. For more information email him at dbiray@gmail.com , or to view other articles written by him visit http://www.biraynetworks.co.nr

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