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Yahoo! Inc. (YHOO) Tumbles As Investors Flee Alibaba (BABA)

Yahoo! Inc. (NASDAQ:YHOO) is one of several companies being impacted by the decline in Alibaba’s stock today, which YHOO shares off by 5% this afternoon after Bloomberg reported that the SEC is investigating Alibaba Group Holding Ltd (BABA) concerning its accounting practices, in particular, Alibaba’s consolidation practices relating to the data reported from the company’s Singles’ Day promotion. Yahoo’s large ownership stake in Alibaba accounts for the majority of the value of Yahoo’s shares, which is why they’ve lost about 66% of what Alibaba has declined by today (7.5%). Yahoo is currently trying to sell its core internet business to the highest bidder, with AT&T (NYSE:T) being one of the company’s that has made a bid for Yahoo’s internet assets.

Yahoo! Inc. (NASDAQ:YHOO) was in 97 hedge funds’ portfolios at the end of March. YHOO shareholders have witnessed an increase in hedge fund sentiment in recent months. There were 84 hedge funds in our database with YHOO holdings at the end of the previous quarter. At the end of this article we will also compare YHOO to other stocks including Estee Lauder Companies Inc (NYSE:EL), Travelers Companies Inc (NYSE:TRV), and Brookfield Asset Management Inc. (USA) (NYSE:BAM) to get a better sense of its popularity.

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We track prominent investors and hedge funds because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 15 most popular small-cap stocks among a select group of investors delivered a monthly alpha of 80 basis points between 1999 and 2012 (see the details here).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, D. E. Shaw’s D E Shaw has the most valuable position in Yahoo! Inc. (NASDAQ:YHOO), worth close to $700.8 million, amounting to 1.3% of its total 13F portfolio. Sitting at the No. 2 spot is Owl Creek Asset Management, managed by Jeffrey Altman, which holds a $554 million position; 30.3% of its 13F portfolio is allocated to the company. Other members of the smart money that are bullish comprise Kenneth Mario Garschina’s Mason Capital Management, Jeffrey Smith’s Starboard Value LP, and Joshua Friedman and Mitchell Julis’ Canyon Capital Advisors.

On the next page we’ll look at some funds that took up positions in Yahoo during Q1, as well as compare the stock to a handful of others with similar market caps.

Key hedge funds jumped into Yahoo! Inc. (NASDAQ:YHOO) headfirst in Q1. Iridian Asset Management, managed by David Cohen and Harold Levy, created the most valuable position in Yahoo! Inc. (NASDAQ:YHOO), having $318.4 million invested in the company at the end of the quarter. Owl Creek Asset Management also initiated a $154.9 million position of call options during the quarter. The other funds with new positions in the stock are Josh Resnick’s Jericho Capital Asset Management, Steve Cohen’s Point72 Asset Management, and James Dinan’s York Capital Management.

Let’s check out hedge fund activity in other stocks similar to Yahoo! Inc. (NASDAQ:YHOO). We will take a look at Estee Lauder Companies Inc (NYSE:EL), Travelers Companies Inc (NYSE:TRV), Brookfield Asset Management Inc. (USA) (NYSE:BAM), and Twenty-First Century Fox Inc (NASDAQ:FOXA). This group of stocks’ market values are similar to YHOO’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
EL 28 598209 2
TRV 28 531046 4
BAM 14 1183519 -6
FOXA 46 3860696 -4

As you can see these stocks had an average of 29 hedge funds with bullish positions and the average amount invested in these stocks was $1.54 billion. That figure was $7.92 billion in YHOO’s case. Twenty-First Century Fox Inc (NASDAQ:FOXA) is the most popular stock in this table. On the other hand Brookfield Asset Management Inc. (USA) (NYSE:BAM) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Yahoo! Inc. (NASDAQ:YHOO) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.

Disclosure: None

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