Tuesday, August 25, 2009

Buy Yahoo!

The Big Internet Seven in my book are:


Google
Facebook
Yahoo
Amazon
Apple
EBay
Microsoft

I have listed them in order of investment attractiveness to me. Of course, any guess at what the future holds is always an iffy proposition. There are obvious problems with this list.

1) Facebook is the clear leader in the fastest growing sector of the Internet. It has grown so fast that it has knocked MySpace halfway to the moon, but the shares are not publicly traded.

2) Apple is a heck of a company. It is selling 25% of all music!!! A single Apple store in Manhattan has revenues of 350 million dollars and it sells $35,000 per square foot, compared to the $18,000 per square foot of Tiffany's. Apple is expected to announce a market leading tablet computer soon. It is expected to jump into the lead of the Internet 2.0 mobile computing race. A common problem for Apple and Google is that the market is discounting rapid growth for many years into the future. Apple and Google sell at high price to earnings, sales and cash flow. They both enjoy very high profit margins past growth is huge for Google and off the chart for Apple. The market values Apple more than Google. But give me the choice of owning all of Google or all of Apple and I will take Google, keep the change and be in a safer position. Google has a big ditch to jump in regard to Google Wave. If it is successful, it will give Facebook, Apple, Yahoo and many others a bad case of heart burn. Google's position in regard to reading eyeballs is also a potential huge winner as Youtube is starting to be. Google has been first on my list for four years and I don't see it getting knocked off.

3) Microsoft has all but lost the mobile computing war after just the beginning battles of Internet 2.0. Microsoft's recent successes was the retaking of the netbook Operating System hill, but Google will release its netbook OS next year. Based on the rapid adoption being enjoyed by Android, I believe Chrome OS is going to take a major share of market. Today, Blackberry joined the mobile webkit browser development team. Nokia, Apple, Sprint, Google and many others are on this team. Microsoft continues to offer smart phones but the others have the scale to knock Microsoft out.

4) Picking Amazon over Ebay was a tough call but Amazon is another heck of a company selling at high multiples. Amazon has a big lead in the electronic reader business but, today, details of the new wireless Sony reader came out. The initial price is $399, but I suspect it will be offered with a few hundred dollars worth of best sellers and a few thousand dollars worth of classic books free of charge. One blogger has written about how one would need to buy 30 books to save the reader price. He is missing the boat entirely. The Sony Reader includes the ability to wirelessly check out selected works from selected libraries. The convenience of easy book downloads will make the readers compelling devices to own. Ebay is not just an auction site for household collections. Ebay is an online retailer much like Amazon. I simply like Amazon better than Ebay.
5) Yahoo, in my book, has taken a major leap forward. I believe the new CEO knows what she is doing. I have never stopped liking Google but Yahoo has been favored and unfavored at times. When Microsoft was trying to buy Yahoo, it traded at $43.21 per share. Today, after Microsoft has agreed to do a lot of work for Yahoo free of charge and to give it the bulk of advertising revenues for the next 10 years, Yahoo sells for $15.07! Yahoo is another heck of a company. It has over 100 million email clients! It is the leader in a number of web site markets, including the financial area. During this Bull Market, Yahoo is going to be visited a few zillion times, over and above the times it will be visited as a result of Bing searches.

The businesses of Amazon and Ebay are lower margined businesses than the others. I recommend that you pick two or even three stocks out of the Google, Yahoo, Apple and Microsoft group and one out of the Amazon, Ebay group.

Bookmark this page and comeback a year and five years from now to see how good my educated guess proves to be. My expectations are for rapid growth over the next 5 years. Here are the symbols and prices as of today's close:

Goog 471.37, Yhoo 15.07, AAPL 169.40, AMZN 84.19, Ebay 22.31, Msft 24.64.

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