A diversified portfolio includes a mix of securities that will reduce your risk. This signifies that one will need to have securities that follow the market indices and others that do not. However, this is not as simple as it sounds, for one has to maintain their portfolio constantly by buying and selling securities. One security that investors should be considering holding, to diversify their portfolio, is Yahoo (NASDAQ:Yhoo).
Yahoo is faintly remembered as one of Google’s competitors that was branded a loser in the search engine wars. The company has begun to turn its fate around by taking steps to recreate itself for the modern internet. Its most important step in this process was the addition of Marissa Mayer, A former Google Executive, to serve as its CEO.
Upon her arrival, Mrs. Mayer brought key ideas to improve the company. Some of the ideas such as offering free cafeteria food and providing employees with smartphones, were borrowed from Google. She also implemented original ideas such as redesigning the company’s website and ending telecommuting. Under Mrs. Mayer’s Leadership the company was able to take focus on external opportunities as well.
For example, The company’s acquirement of startups falls into this category, particularly the acquirement of the news reader mobile application Summly created by 17 year-old Nick D’Alosio, which summarizes long articles for users. In addition to acquiring businesses, Yahoo has been bringing in personnel to improve its success. For example, Yahoo corralled from the New York Times, Matt Bai, former chief political correspondent, David Pogue, former tech columnist, and Megan Liberman, former deputy editor. More importantly, the company is in the process of procuring Katie Couric from ABC.
Yahoo has also planned for the future as it plan “to sell $1 billion of convertible bonds maturing in 2018 in a private placement. The company may use proceeds to finance stock repurchases and business acquisitions, among other uses.” (Roy, Somaditya. “Yahoo to Auction Domain Names.”) Furthermore, Yahoo has decided to partner with Starcom, advertising firm, in order to produce personal advertisement video for their users. The main idea behind it is that they will produce advertisements that will attract users and help them get the products they want.
The company has also begun to limit its losses and improve its efficiency. It has decided to auction its domain names that are not of use to them. There are “more than 100 somewhat unusual domain names, such as sandwich.com and crackers.com…the domain names are priced from $1,000 on the low end to as high as $1.5 million.” Likewise, the company has decided to let go of its employees that are considered to not be performing up to standards. Currently, the number of employees to be let go is at 500.
As a result the success can be measured by the current stock price, which on December 16, 2013, Yahoo closed at $39.73 a share. This about an 152% increase from when Mrs. Mayer first joined Yahoo as CEO on July 16, 2012.
It’s important to remember that this is not high growth stock. In the three month range, Yahoo has slowly increased from about $30 to $40 a share. Its beta of 0.66 supports this notion for it signifies that it shadows the market index, NASDAQ.
Compared to Google (NASDAQ:GOOG), that has price to earnings ratio of 29.20. Yahoo appears to outperform with its Price to earnings ratio of 34.05. However, the earnings per share reveals the truth. Google’s EPS is 36.75 while Yahoo’s EPS is 1.17, which implies that Google is a clear High growth stock and that Yahoo’s earnings are low.
Yahoo may not be the same dominant company that it was in the 1990s. It is slowly improving and has proved to be quite stable through its low earnings and moderately high beta. Therefore, Yahoo is a worthy stock to diversify one’s portfolio, in order to maintain unsystematic risk low.
Sources:
Bauder, David. “Reports: Couric Will Leave ABC News, Head to Yahoo! for Online Interview Show.” The Canadian Press 22 Nov. 2013: n. pag. Factiva. Web. 25 Nov. 2013.
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Perlroth, Nicole. “The Chief of Yahoo Lifts Sales, and Spirits.” NYtimes.com. New York TImes, 28 Jan. 2013. Web. 25 Nov. 2013.
Perlroth, Nicole. “Marissa Mayer Puts Her Stamp on Yahoo.com.” NYtimes.com. New York TImes, 20 Feb. 2013. Web. 25 Nov. 2013.
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Stelter, Brian. “He Has Millions and a New Job at Yahoo. Soon, He’ll Be 18.” NYtimes.com. New York TImes, 25 Mar. 2013. Web. 25 Nov. 2013.
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