Cooling Yahoo still rates a `buy'

Your Money

October 29, 2006|By Andrew Leckey | Andrew Leckey,Tribune Media services

I am concerned about my shares of Yahoo Inc. and wonder if time has passed the company by.

- L.R., via the Internet

Powerful Internet rival Google Inc. may have passed it by, but its own long-term viability depends mostly on whether it can improve advertising sales and seize new market opportunities.

Yahoo (YHOO) stock is down 40 percent this year after gaining 4 percent last year, its years of huge gains - 67 percent in 2004 and 175 percent in 2003 - now seemingly behind it.

It needs revenue gains from its new and upgraded search-advertising system called Panama, which chief executive Terry S. Semel believes will provide "meaningful financial benefits."

The first phase, a new ad platform, was pushed back from the third quarter to the fourth. A second phase, which ranks ads using several different criteria, will be available early next year.

Yahoo has one of the most popular sites on the Web, the online advertising industry is setting records and there should be positive e-commerce results during the holiday season. The firm has more than $3 billion in cash and a solid position in online advertising.

Its third-quarter profits, however, declined 37 percent when compared with Google's 92 percent increase. Yahoo is closing U.S. offices during the last week of the year to cut costs.

Blame this on competition from not only Google and the YouTube site that Google is purchasing, but Microsoft's MSN, News Corp.'s MySpace and the Facebook site Yahoo has been in talks to buy.

In the belief the stock has bottomed out, the consensus rating of Yahoo by Wall Street analysts is "buy," according to Thomson Financial, consisting of six "strong buys," 24 "buys," nine "holds" and one "strong sell."

Yahoo isn't rolling over and playing dead.

A redesigned home page went live in September. It has an agreement to deliver online services to Hewlett-Packard Co.'s consumer PCs and is offering a Web photo-sharing service with AT&T.

Yahoo purchased Jumpcut, whose members can create short films using stock footage and their own videos.

It is buying a 20 percent stake in Right Media, whose exchange is used to buy and sell online advertising through auction, and is purchasing Fysix, whose product is used to create online ad campaigns.

Acquisitions of photo-sharing site Flickr and social bookmarking site Del.icio.us have proven successful.

Earnings are expected to decline 21 percent this year, compared with the 10 percent growth rate forecast for the Internet information provider industry.

Next year's projected 30 percent increase compares with 19 percent expected industrywide.

The five-year annualized growth rate forecast is 25 percent versus 13 percent forecast for its peers.

Do you think that the Davis New York Venture Fund is worth putting money into?

- K.T., via the Internet

Although only an average performer this year, this fund has a solid long-term track record. It communicates its strategies well to shareholders and keeps its expenses reasonable.

The fact that more than 40 percent of its portfolio is in financial stocks could be a problem, but at least that sector has a mix of banks, insurers and brokerages that exhibit their own individual traits.

The $39 billion Davis New York Venture Fund (NYVTX) is up 18 percent over the past 12 months to rank in the upper half of large growth and value funds. Its three-year annualized return of 14 percent places it in the top 10 percent of its peers.

"While it might not be aggressive enough for some, it is a large-cap fund worthy of being a core holding in most investors' portfolios," said Kerry O'Boyle, an analyst with Morningstar Inc. in Chicago. "Companies with good management teams are important to its portfolio managers, who have especially gotten to know the management teams in the financial arena."

Portfolio managers Christopher Davis and Kenneth Feinberg were named Morningstar's Domestic Equity Fund Managers of the Year in 2005.

The Davis family owns the firm; its managers, analysts and directors have a significant portion of their own money invested in the funds. They also are corporate governance activists.

They seek companies whose shares are temporarily depressed in light of what they consider their intrinsic value. Portfolio turnover is low and volatility kept to a minimum.

Besides the hefty portion of fund assets in financial services, other meaningful concentrations are in consumer goods, energy and consumer services.

Top holdings were recently Altria Group, American Express, ConocoPhillips, American International Group, JPMorgan Chase, Tyco International, Costco Wholesale, Golden West Financial, Wells Fargo & Co. and HSBC Holdings.

This 4.75 percent "load" (sales charge) fund requires a $1,000 minimum investment and has an annual expense ratio of 0.87 percent.

With interest rates going up the last couple of years, I've wondered why the government raises them.

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