In recent months, Yahoo! Inc. (NYSE:YHOO) has changed its corporate plans and canceled the spinoff of its stake in Alibaba. Without a clear strategy, the falling value of the YHOO stock price has shown that investors are doubtful about CEO Marissa Mayer’s ability to turn the company around. Starboard Value, one of the main funds, for instance, asks that Yahoo reconsider the way it runs its different businesses.
Yet, the gloom surrounding Yahoo stock has not discouraged investors and hedge funds. Yahoo has seen some of the largest gains on Wall Street over the past week, rising by 8.4% in the past week. Yahoo stock has a 12-month low of $26.15 and a 12-month high of $46.17.
Yahoo is looking for a savior. It may have found one in the form of Verizon Communications Inc. The prospect of a buyer lurking in the background may explain why Yahoo draws attention from hedge funds. Verizon’s CEO, Lowell McAdam, confirmed his company’s interest in Yahoo stock during an interview with CNBC.
Verizon sees Yahoo as a logical addition, considering that in 2015, Verizon acquired AOL for $4.4 billion. Yahoo would enhance Verizon’s strategy of improving connectivity, adding traffic-generating platforms on its networks and, finally, to have content that supports its ecosystem.
Rather than sell their YHOO stock holdings, several funds have added Yahoo. It seems that after considering various Yahoo stock scenarios, with or without an Alibaba spinoff, funds are identifying a wide enough safety margin for profit.
Grassi Investment Management was one of those funds increasing its stake in Yahoo stock. Grassi added 3.4% during the fourth quarter, according to its latest 13F filing with the Securities and Exchange Commission (SEC) , which was disclosed on February 16. Grassi added 4,904 shares to its existing 150,030 shares of Yahoo stock for a total value $4.498 million. (Source: “Yahoo! Inc. (YHOO) Stake Increased by Grassi Investment Management,” Financial Market News, February 16, 2016.)
Creative Planning increased its position in Yahoo stock by 8.7% in the fourth quarter. River & Mercantile Asset Management added $2.89 million to its existing Yahoo holdings, while Water Island Capital increased its Yahoo stock holdings by some 90% in the third quarter. (Source: Ibid.)
The fact is that Yahoo stock remains popular. In fact, the latest SEC filings say that 697 hedge funds and institutional investors own YHOO. Institutional investors own more than 68% of Yahoo’s outstanding shares as of 1Q2015. (Source: “Yahoo Inc. Bearish Signal Filo David decreased Stake,” OctaFinance.com, January 22, 2016.)
A surprising 49 firms hold YHOO stock as a top 10 investment, including Owl Creek Asset Management L.P., Hudson Bay Capital Management LP, Luxor Capital Group LP, and Oxford Asset Management. (Source: Ibid.) JAT Capital Management LP is one of the most bullish investors with its 6,706,079 shares in Yahoo stock, representing 8.02% of the fund’s stock portfolio. (Source: Ibid.)
JAT Capital actually bought 2.1 million Yahoo shares recently. Carlson Capital bought 2.9 million shares. Some European pension funds, which are typically conservative, have also added to their Yahoo holdings. The Fourth Swedish National Pension Fund added 1.9% to its Yahoo stock in the fourth quarter. (Source: “Top U.S. hedge funds bet on Morgan Stanley and AIG,” Yahoo! Finance, February 16, 2016.)
Goldman Sachs has a $33.00 price target on Yahoo stock, with a “Neutral” rating. S&P Equity Research downgraded Yahoo stock, but still lists it as a “Buy” with a $38.00 price target. Macquarie lowered its price target on shares of Yahoo from $37.00 to $33.00 and set an “Outperform” rating. But these are the conservatives. Indeed, Yahoo stock has a “Buy” rating with a consensus target price of $40.49. This means that the stock has plenty of upside at its current valuation. (Source: “Goldman Sachs Reiterates $33.00 Price Target for Yahoo! Inc. (YHOO),” EMQ News & Analysis, February 8, 2016.)