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Buy Yahoo—New CEO Will Lead It Out to $20: Pro

Yahoo Screenshot
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Yahoo Screenshot

I keep an eye on stocks that perform well on days when most of the rest of the market slumps.

I haven’t done it, but it would probably be worthwhile to track how well stocks that advance on days when the Dow Jones Industrial Average drops by 100 points or more perform during the days after.

To be clear, quite a few stocks went up on Friday; almost a third of New York Stock Exchange names and a full quarter of Nasdaq issues rose. In the face of a choppy trading day, a 121-point drop in the Dow industrials and a 41-point decrease in the Nasdaq, Yahoo performed relatively well.

For a stock that has stagnated for so long, the 2 percent gain Yahoo has made since it announced the hiring of Marissa Mayer as its new CEO last Monday afternoon warrants attention. The stock picked up more than half of that upside during this past Friday’s session.

Granted, Yahoo has flirted with a breakout above $16 in recent months, but it could never sustain anything north of that threshold for very long. That could be change with Mayer in charge.

So much of the response to Mayer’s hiring was just sad. I was ashamed to work in the same industry as dozens of folks who decided to trash the move on such flimsy grounds.

Of course, you had the chauvinist hacks who have done nothing but disrespect Mayer because she’s a pregnant CEO.

These self-proclaimed studs never thought to reserve judgment. Maybe Mayer is capable of multitasking. Maybe she’ll schedule a C-section? Maybe her husband lives in the new century and plans to share the child-rearing load. Who knows? Maybe he’ll take the lead? Maybe the happy couple has parents? Maybe they’ll hire a nanny?

What a novelty — thinking before you speak.

Where there wasn’t testosterone-fueled chauvinism, we saw more than a few snarky scribes denounce Mayer before she even set foot in the office for Day One on the job. To his credit, John C. Dvorak held off on the insults until Day One. Over at PCMag, he wrote a pathetic hatchet job discrediting Mayer because she is young, looks young, and is a Yahoo outsider. Then, accompanied by little substance to support his claim, he argued that “100 resentful [Yahoo] executives” will stab Mayer in the back before she has a chance.

He ends his out-of-touch tirade by linking to a tweet he sent Mayer saying: “@marissamayer Congratulations AND good luck. You are going to need it.” He noted that he never heard back from her. John: It never pays to be rude. Plus, it’s not that you’re 60 years old; your attitude makes you sound older. This is not the Silicon Valley you grew up covering.

In 2007, Dvorak, then at MarketWatch, said that, “Apple should pull the plug on the iPhone.” Then, in PCMag circa 2010, in a classic example of making the same mistake twice, he predicted iPad would be a “good for nothing ... flop.”

Just because Yahoo has been a disaster does not mean we should brand Mayer one until she proves otherwise.

A Bold Move Brings New Blood

Quite the contrary, Yahoo becomes a “buy” because the company made the bold move. Other tech companies pass “seasoned executives” back and forth to fill CEO jobs. That will not end well in a world defined by brands of the young, such asGoogle,Facebook, and Apple.

Young, fresh blood represents the future of the tech, Internet, and new-media space, not the tired old status quo that guys who have been covering the beat for decades find routine comfort in.

But it’s not even about the number that represents your age. It’s about how you approach the business. Visionaries like Steve Jobs, who died at age 56, Jeff Bezos, 48, at Amazon.com, Mark Pincus, 46, at Zynga and Tim Westergren, 46, at Pandora Media are ageless.

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The latter three — and others like them — will carry the entrepreneurial torch for Jobs. This group, which Mayer could very well end up part of someday, will run circles around people with outdated mindsets, regardless of their dates of birth. Once the sensationalistic dust settles, investors will focus on the early portion of Mayer’s tenure as a honeymoon period. Given this week’s modest rise in Yahoo, maybe they already have. As she begins setting the groundwork for a turnaround, we'll see more upside in the shares.

After last week’s gains, Yahoo trades at a price-to-earnings ratio just below 18. It’s able to stay in the teens, as opposed to the single digits of Research In Motion— before it started losing money — because, relatively speaking, its remains a revenue powerhouse, it does not seem to run the immediate risk of losing money, and plenty of eyeballs see value in the company’s properties and content.

If you view the price-to-earnings ratio as I do — as less of a valuation measure and more of a gauge of investor confidence in the future — it’s easy to see why you should expect more upside in Yahoo on the heels of Mayer getting the CEO gig.

Yahoo Becomes a Player Again

Despite yowls from irrelevant peanut galleries, most people who matter in Silicon Valley lauded the hire. If you survey those who remain not only relevant, but influential and life-giving in tech — venture capitalists and such — the consensus is clear: We cannot believe Yahoo pulled this off.

In the minds of many great tech/Internet/new-media thinkers and funders, Yahoo became a player by hiring Mayer. Union Square Ventures principal Fred Wilson said it best on his blog: “Yahoo Is No Longer Dead to Me.”

In other words, Yahoo’s board, by deciding to hire Mayer, but also by being able to pull it off, restored investor confidence. As a result, expect the stock to command a higher multiple in the coming months on the Mayer news alone.

Once she puts her mark on the Yahoo — by raiding Silicon Valley companies like Google for talent, for example — expect more upside. If she goes on to execute, Yahoo could become one of the decade’s top multibagger turnaround plays.

—By TheStreet.com Contributor Rocco Pendola

Additional News: Mayer’s First Day as Yahoo CEO

Additional Views: Saving Yahoo Won’t Be Easy: Analyst

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Disclosures:

TheStreet’s editorial policy prohibits staff editors, reporters, and analysts from holding positions in any individual stocks. At the time of publication, Rocco Pendola was long Facebook, Pandora Media, and Zynga.

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