Yahoo (YHOO) in many ways is a sad tale. They have one of the most sticky sites on the internet but have failed to monetize this to a level they could of (or should of). That said, at least they brought CEO Wang back so there are some hopes down the road. But right now I don't care much about that - I just care that Chinese investors have no care about valuation and will be thirsting for a hot tech IPO like Alibaba.com. While the shares will trade in Honk Kong, that market has been on fire (up >50% since August) and the time to strike is now, when anything Chinese gets a valuation metric that makes little sense. So in that sense, great timing. (who knows, this IPO might mark the near term top of this incredible run in those markets?) I don't know, nor really care what Yahoo's stake in Alibaba.com will mean in the long run - this is going to be a trade.
Yahoo owns 39% of Alibaba.com and the stock is poised to IPO at HK$13.50 on Nov 6th. Yahoo has already made a run in anticipation of this IPO, rising from $28 to $34, but when the actual price of the IPO came out, investors sold off Yahoo, and the stock is now touching $30. That's where I come in. With the stock back down to its 20 day moving average we have a bit of a safer entry point, and downside to $28 (50 day moving average) looks like the downside of this trade.
The original IPO price makes little difference to me (did we value EMC at the original IPO price of VMWare (VMW)?) - the Chinese took a coal company up 90% on its first day, what do you think they will be doing to a premium internet company? One of the top 2 names in the country (along with Baidu.com) at that? I am fully confident in the Chinese ability to overvalue Alibaba.com. You will see a magnificent unholy spike, it's just a matter of degree. And how much Yahoo falls in line. I am going to see if we can get a nice 13-15% short term trade here (this would take Yahoo to $34-$34.50).
Again this is atypical of the fund's holdings which are more long term secular growers. But we have an opportunity here to take advantage of the Chinese propensity to value everything at 10x what it would be valued in the US, and a premium brand like Alibaba.com does not come along often.
I bought 800 shares near $30 for $24K. If the stock dips to $28 area pre IPO, I will buy more.
Long Yahoo, Baidu.com in fund; long Yahoo in personal account
2 comments:
Mark,
For someone who is also a fan of stochastics (YHOO is currently at 55 and trending down), wouldn't it be wiser to hold off on such a trade for a day or two more in anticipation of the stock continuing to decline towards its 50 DMA and stochastics bottoming?
It seems to me this stock has a day or two more of free fall left in it before the traders begin to look at the Alibaba.com play again.
Love the blog,
Brian
Hi Brian. I am not an advanced technical trader. I am 90% fundamentals/10% technicals. I simply use basic moving averages and volume (I am trying to use MACD more) - but thats about as far as I go. I almost never get the very bottom of anything (nor the very top), I simply try to get the middle 60% of a move.
So with a trade like Yahoo which is short term in nature, being a better technical analyst would help me that is for sure. But I try to layer IN and OUT of positions since my TA skills are "basic", i.e. with Garmin yesterday I started a position, the stock fell today, I am adding more. Probably a better TA skill set would of told me not to buy Garmin yesterday but I just use it for general set ups. My thinking with Yahoo is $30 now, if market weakens on bad employment tomorrow its $28 no matter what. If market rebounds its going higher than $30. How much of that is TA and how much is market driven, I don't know.
Once I get a real mutual fund I will have to hire a real TA guru to advise me ;) but I still like fundamentals for most of what I do since the time lines are longer on positions. Thanks for your comments!
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