Pat McKeough responds to many personal questions about specific stocks and other investment topics from the members of his Inner Circle. Every week, his comments and recommendations on the most intriguing questions of the past week go out to all Inner Circle members. And each week, we offer you one of the highlights from these Q&A sessions. While we reserve our buy-hold-sell advice for Inner Circle members, these excerpts provide a great deal of information and analysis on stocks we’ve covered for the Inner Circle.
Recently, we received a question from an Inner Circle member about one of the world’s most visible technology stocks, Internet giant Yahoo. Pat discusses the state of the company following its recent hiring of a new CEO away from its most powerful rival, Google. Pat also took the opportunity to compare the prospects of both of these Internet giants.
Q: Pat: I’d be very interested in your opinion on Yahoo! Thank you.
A: Yahoo (symbol YHOO on Nasdaq; www.yahoo.com), is one of the Internet’s most popular destinations for content, search and navigational services. Yahoo’s sites also have a range of other features, including shopping, auctions and email.
Yahoo has concluded its search for a new chief executive officer. That has pushed up its share price.
The company has appointed Marissa Mayer as president and CEO. Mayer joined Google in 1999 and helped develop many of that company’s most popular services. Before she left, she was a vice-president at Google.
The company has a strong balance sheet, with $8.4 billion in cash. It also has profitable operations in Asia, including 20% of Chinese search company Alibaba Group and 35% of Yahoo Japan.
Yahoo trades at 19.2 times this year’s forecast earnings of $0.92 a share.
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Motorola Mobility acquisition produces lower earnings, higher revenues for Google
In his reply to this Inner Circle member’s question, Pat also looked at Yahoo’s rival, Google (symbol GOOG on Nasdaq; www.google.com).
Google dropped recently after it reported lower-than-expected earnings, mainly due to higher costs following its acquisition of cellphone maker Motorola Mobility in May 2012. The company is also earning less per online ad.
In the three months ended September 30, 2012, Google’s earnings fell 20.3%, to $2.2 billion, or $6.53 a share. A year earlier, it earned $2.7 billion, or $8.33 a share. If you exclude costs to integrate Motorola and other unusual items, earnings per share would have fallen 7.1%, to $9.03 from $9.72. That missed the consensus estimate of $10.63.
Revenue jumped 45.1%, to $14.1 billion from $9.7 billion. Motorola accounted for 59% of the increase.
The stock trades at a reasonable 15.7 times Google’s projected 2012 earnings of $42.54 a share.
In the Inner Circle Q&A, Pat examines the stiff competition in Internet search and GPS-based navigational services. He also looks at the increasing use of Internet streaming on mobile devices and its effect on the revenues of both Yahoo and Google. He concludes with his clear buy-hold-sell advice on these two stocks.
(Note: If you are a current member of the Inner Circle, please click here to view Pat’s recommendation. Be sure to log in first.)
COMMENTS PLEASE—Share your investment experience and opinions with fellow TSINetwork.ca members
Do you think Internet stocks like Yahoo and Google and social media stocks like Facebook and LinkedIn will become well-established stocks for years to come? Or do you think there is too much rapid change and competition on the Internet to rely on these stocks for the long term? Let us know what you think.