Elite Inside Trader

“Be fearful when others are greedy and greedy when others are fearful” – Warren Buffet  Those are words of wisdom investors should take heed of when emotions are running high.  Value investors use this mantra and attitude to cash in at the right time, whether selling at a stock’s peak hysteria or buying issues when investor sentiment is in the dumps.  Yahoo!’s (NASDAQ: YHOO) stock is getting raked over the coals in the media recently, and as such, is likely undervalued and being sold at a bargain price.  Here’s why we are going against the herd and buying in on Yahoo! right now:

Yahoo!’s China Advantage

Recently, Yahoo!’s reliance on its stake in Chinese Internet giant Alibaba.com has been seen as somewhat of a curse, as a small spat rose up when Alibaba decided to transfer all of its online payment platform’s assets, Alipay, to CEO Jack Ma, apparently without seeking approval from the board before doing so.  Investors panicked and Yahoo!’s stock lost about 15% of its value in a terrible week.  However, this leaves the company’s share price at a great value which smart investors should be pouncing on.  Looking beyond the public dispute, Yahoo!’s $2.3 billion, 43% stake in Alibaba.com hasn’t lost the true value it has in its Alibaba stake.  That true value lies in Alibaba’s 75% e-commerce market share holding Taobao subsidiary.  Many equate this website to China’s version of e-Bay, but, while this is a good place to begin a comparison, this very, very much underestimates the value Taobao’s business has.  Taobao is essentially as much a staple of Internet life for Chinese as Facebook is for Americans, with 370 million active users.  From my experience working at a Chinese company, I have seen co-workers check the site for the newest deals and cheapest prices every moment of spare time they find.  In China, it ranks #4 on Internet traffic ranker Alexa.com’s database.  Taobao also is taking its strategy to an international level, when it partnered with Yahoo! Japan in 2010 to launch Yahoo! Japan China Mall, connecting Chinese Taobao merchants and consumers to Japanese merchants and consumers.  The best thing about Yahoo!’s connection to Taobao through Alibaba?  Taobao still hasn’t launched an IPO!  With rumors swirling that it may be one of the next to ride the wave of Chinese IPO popularity on Wall Street, Yahoo!’s 43% stake in Alibaba still looks very attractive.  Though Yahoo! and Alibaba just issued a joint statement highlighting the ongoing efforts to solve the Alipay dispute, Yahoo! could cash out to a huge profit and sell its 43% stake in the Chinese giant after a potential Taobao listing, or simply ride the quickly growing website’s bottomline further into a profitable future.

Hedge Funds Buying In Now

If investors were waiting to see when Yahoo!’s share price bottomed out, increased trading volume at the end of last week point to Yahoo! regaining its momentum.  Yahoo! had one of NASDAQ’s highest trading volume at the end of the week, largely due to fund’s buying a net 47 million shares, to raise their stake to a total of $2.5 billion.  If skeptical investors were still hesitant, this seems to be an indication that the worst is over for Yahoo!.  Yahoo!’s P/E ratio currently sits at 19.15, below the Internet Information Providers industry average of 30.10, showing the undervalued stock is still a bargain for investors who choose to act now.

Though the pessimism mounted over the last 2 weeks about Yahoo!’s future, Yahoo! still retains much of the value from its stake in Alibaba through Taobao and has a tremendous future for the investors who are buying now while it is still a bargain.

IMPORTANT NOTICE: "Any information we give you is not our recommendation or advice to take (or not to take) any particular course of action in relation to your investments. You should take your own independent advice based on your specific circumstances."

Tags: Alibaba, Alipay, Hedge Funds, Jack Ma, Taobao, Yahoo, YHOO