By Andrew Leckey
Tribune Media Services columnist
October 29, 2006
A: Powerful Internet rival Google Inc. may have passed it by, but its own long-term viability depends mostly on whether it can improve advertising sales and seize new market opportunities.
Yahoo (YHOO) stock is down 40 percent this year after gaining 4 percent last year, its years of dramatic gains--such as 67 percent in 2004 and 175 percent in 2003--now seemingly behind it.
It needs revenue gains from its new and upgraded search-advertising system called Panama, which Chief Executive Terry Semel believes will provide "meaningful financial benefits." The first phase, a new ad platform, was pushed back from the third quarter to the fourth. A second phase, which ranks ads using several different criteria, will be available early next year.
Yahoo has one of the most popular sites on the Web, the online advertising industry is setting records and there should be positive e-commerce results during the holiday season. The firm has more than $3 billion in cash and a solid position in online advertising.
Its third-quarter profits, however, declined 37 percent in comparison to Google's 92 percent increase. Yahoo is closing U.S. offices during the last week of the year to cut costs.
Blame this on competition from not only Google and the YouTube site that Google is purchasing, but Microsoft's MSN, News Corp.'s MySpace and the Facebook site Yahoo has been in talks to buy.
In the belief the stock has bottomed out, the consensus rating of Yahoo by Wall Street analysts is "buy," according to Thomson Financial, consisting of six "strong buys," 24 "buys," nine "holds" and one "strong sell."
Yahoo isn't rolling over and playing dead.
A redesigned home page went live in September. It is delivering online services to Hewlett-Packard Co.'s consumer PCs and offering a Web-based photo sharing service with AT&T.
Yahoo purchased Jumpcut, whose members can create short films using stock footage and their own videos. It is buying a 20 percent stake in Right Media, whose exchange is used to buy and sell online advertising through auction, and is purchasing Fysix, whose product is used to create online ad campaigns. Acquisitions of photo-sharing site Flickr and social bookmarking site Del.icio.us have proven successful.
Earnings are expected to decline 21 percent this year, compared with the 10 percent growth rate forecast for the Internet information provider industry. Next year's projected 30 percent increase compares to 19 percent expected industrywide. The five-year annualized growth rate forecast is 25 percent versus 13 percent forecast for its peers.
Q: Do you think that the Davis New York Venture Fund is worth putting money into? -- K.T., via the Internet
A: Although only an average performer this year, this fund has a solid long-term track record. It communicates its strategies well to shareholders and keeps its expenses reasonable.
The fact that more than 40 percent of its portfolio is in financial stocks could be a problem, but at least that sector has a mix of banks, insurers and brokerages that exhibit their own individual traits.
The $39 billion Davis New York Venture Fund (NYVTX) is up 18 percent over the past 12 months to rank in the upper half of large growth and value funds. Its three-year annualized return of 14 percent places it in the top 10 percent of its peers.
"While it might not be aggressive enough for some, it is a large-cap fund worthy of being a core holding in most investors' portfolios," said Kerry O'Boyle, analyst with Morningstar Inc. in Chicago. "Companies with good management teams are important to its portfolio managers, who have especially gotten to know the management teams in the financial arena."
Portfolio managers Christopher Davis and Kenneth Feinberg were named Morningstar's Domestic Equity Fund Managers of the Year in 2005. The Davis family owns the firm; its managers, analysts and directors have a significant portion of their own money invested in the funds. They also are corporate governance activists.
They seek companies whose shares are temporarily depressed in light of what they consider their intrinsic value.
Portfolio turnover is low and volatility kept to a minimum.
Besides the hefty portion of fund assets in financial services, other meaningful concentrations are in consumer goods, energy and consumer services. Top holdings were recently Altria Group, American Express, ConocoPhillips, American International Group, JPMorgan Chase, Tyco International, Costco Wholesale, Golden West Financial, Wells Fargo & Co. and HSBC Holdings.
This 4.75 percent "load" (sales charge) fund requires a $1,000 minimum investment and has an annual expense ratio of 0.87 percent.
Q: With interest rates going up the last couple of years, I've wondered why the government raises them. -- G.C., via the Internet
A: The government through the Federal Reserve adjusts the federal funds rate, an overnight bank lending rate that affects the interest rates on credit cards, car loans and home-equity lines of credit.
Recently that rate has been flat. The Fed stopped hiking it amid a cooling housing market and falling oil prices.
"If the policymakers feel inflation is too high or accelerating, they'll raise interest rates and that will slow economic activity," said Mark Zandi, chief economist for Economy.com in West Chester, Pa. "Their ultimate objectives are to ensure slow and stable inflation and to have an economy that is growing at its potential."
While adjustment of the fed funds rate influences most other rates, it doesn't actually determine them. It also has less effect on long-term rates, such as fixed-rate mortgages, which are influenced by broader economic factors.
"Higher interest rates make it cost more to borrow and finance a purchase, giving you fewer financial resources to spend on everything else," Zandi said.
Andrew Leckey is a Tribune Media Services columnist. E-mail him at firstname.lastname@example.org.
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