John StephensonAltaba IncAABAPAST TOP PICKMar 07, 2017

This is the old Yahoo. Short put. 90% of the assets are shares in Alibaba, and AABA is the cheap way to play this. Place a $75 put in October. You'll get $4.50/share. He thinks Alibaba will stay above $75, so you'll keep the premium.

For now, this just represents their position in Alibaba (BABA-N), so it is kind of a reflection on how Alibaba is doing. Alibaba is doing very well, but the valuation is very high and very difficult to assess a downsize if something goes wrong.

The company is planning a Dutch auction, offering to buy back $3 billion worth of stock. Currently they have slightly negative to sort of low single digit growth, and at the same time they are asking for a multiple year. This is not a bad exit point. There are probably better spaces to be in at this time.

There are still reasons to hang onto this. Their Internet business is being sold to Verizon. What you have left is the stub, which is basically a holding company of Ali Baba (BABA-N) and Yahoo Japan. Looking at the current price of Ali Baba, and multiply it times the number of shares that Yahoo owns, the Yahoo price is below its holdings.

From a sum of the parts basis, this is undervalued. The risk is that you have to be careful of Chinese companies. The primary value in this company is there shareholding in Ali Baba (BABA-N). There is a lot of great growth in China, but Ali Baba does not pay a dividend. If something bad happens in China, the primary determinant in this stock is going to get hit.

This is really lacking in search. It is really hard to see a catalyst going forward. The company will be sold off and the best parts taken. He sees no reason to hold this.

Currently going through a sales process and are down to their final bids. You have to believe you will get something much higher to justify holding it. Most people don’t expect a much higher bid from where the stock is right now. If you own, he would lean towards Selling and save your capital.

Their core business is on the block, and he thinks there are a bunch of bidders for it. There is also their position in Ali Baba (BABA-N) which is the vast majority of the stock price. This is a trade, not an investment. If you own, he would get out on any little pop.

(Market Call Minute.) You would be buying this for the breakup value. The stock has been trading sideways. There might be better places with higher odds.

He likes management. He thought there would be an Alibaba spin off, but now he thinks you get a buyout of Yahoo and a stub share of Alibaba. This is a workout situation and he likes them. There might be some more pullbacks, but look for this company to do more to enhance share value. The breakup will be more than the $37 share price.

Some analysts think that with their shares in Ali Baba (BABA-N), Yahoo Japan and Yahoo Assets that the stock is a huge bargain here and that the NAV is worth over $40 a share. He doesn’t like NAV short-term plays, and this hasn’t compounded growth for investors.

The wheels have kind of fallen off. There have been a series of the earnings misses. The most recent quarter was better with a pretty significant restructuring. It seems like they are doing the right things, but the chart is working against you. It seems to him they are still dressing this up for sale, but where it gets taken out is a real question.

*Short*. The guidance was very weak. Most recent earnings slightly beat expectations, but the track record of turning around a core business like this is horrific. Internet property, with Search being pretty much dead, and weak management, this is just screaming for a Short. He could see it falling 50% easily from here.