Great Call on Yahoo! What's Next?

It's been a trying time for Yahoo! (Nasdaq: YHOO  ) investors. Earlier this year, Microsoft (Nasdaq: MSFT  ) offered to take shares off stockholders' hands at $31 apiece. Management and some large investors said "thanks but no thanks," and though a soap-opera-like drama ensued, Microsoft eventually threw in the towel and went off to mend its broken heart.

The release of Yahoo!'s third-quarter results continued to underline just how great that $31 per share would have been. Revenue was basically flat, operating income was down 53%, and the company announced roughly 1,500 layoffs. And while we can't blame all the lousy numbers on Yahoo!'s business -- it spent $37 million to address the Microsoft offer and explore other "strategic alternatives" -- we can look at the stock at less than $12 per share and wipe a tear from the corner of our eye for what could have been.

On CAPS, more than 4,500 stock-picking members have followed Yahoo!'s drama and weighed in one way or the other on the stock. Of that group, none has read the stock quite as well as dtoxify. This CAPS member had made four calls -- three bullish and one bearish -- on Yahoo!'s stock leading up to the buyout offer earlier this year, scoring 69 points along the way.

dtoxify is one of CAPS' All-Stars -- players with a rating of 80 or greater -- having managed a stock picking accuracy of 45% on calls while racking up over 350 points. Yahoo! hasn't been this player's only great call. Here's a look at a few other prescient picks:

Company

Date Picked

Call

Points

CAPS Rating

Fannie Mae (NYSE: FNM  )

11/16/07

Underperform

84

**

SPDR Gold Shares (NYSE: GLD  )

5/18/07

Outperform

44

***

PetroChina

10/3/07

Outperform

39

****

Data from CAPS.

So what is this investor looking at these days? Here are a few recent calls on CAPS:

Company

Date Picked

Call

CAPS Rating

Goldman Sachs (NYSE: GS  )

10/8/08

Outperform

***

Apple (Nasdaq: AAPL  )

10/15/08

Outperform

****

Dow Chemical (NYSE: DOW  )

10/24/08

Outperform

*****

Data from CAPS.

While not all of these picks may pan out, they could be a good place to start some further research. I decided to take a closer at Apple.

The Apple of investors' eyes
If you found a way to wade through the muck and despair of the markets a week ago, you might have come to a refreshing oasis in this market turmoil: Apple's third-quarter earnings report. Revenue for the quarter clocked in at $7.9 billion, a 27% increase from the third quarter of 2007. And year-over-year earnings-per-share growth of 25% surely felt like an icy-cold drink of spring water on a hot desert day to parched investors.

iPhones were one of the biggest contributors to the results, with unit sales up to 6.9 million from just 1.1 million a year ago. Though Steve Jobs said that it's still unclear how the economic downturn might hit Apple, he did note that the company sold more phones than Blackberry maker Research In Motion, and that the company is "armed with the strongest product line in [its] history." He also pointed out that Apple currently has more than $25 billion in cash against no debt.

"Surely," you're thinking, "the stock has rallied on this news and is headed back for the stratosphere, where Apple's stock normally lives." Actually, the stock did show some real life after the report. But the rally was short-lived, and as of Monday's close, Apple shares were practically back down to their pre-earnings-report value. Though I won't call 17 times trailing earnings super-cheap -- particularly in this environment -- if Apple continues to notch similar growth, investors should be handsomely rewarded.

Meanwhile, CAPS members continue to rally behind Apple's stock. One Apple bull, GelEBellyToo, gave the stock a thumbs-up recently, saying:

Apple "gets it". They seem to know what consumers want before consumers do. They are innovative and their products always come out first and continue to command a premium -- even with lots of copy cats.

I expect a shaky year but after the bottom hits, Apple should do really well on the climb back out.

So what's your take on Apple? Will it be able to continue its strong performance over the past few years, or does the Mac maker face weakness ahead? Get in the action with more than 120,000 other players by clicking over to CAPS, absolutely free.

Further CAPS Foolishness:

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Dow Chemical is a Motley Fool Income Investor selection. Microsoft is an Inside Value pick. Apple is a  Stock Advisor recommendation. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Matt Koppenheffer does not own shares of any of the companies mentioned. The Fool's disclosure policy is drinking its coffee out of a pumpkin-shaped mug, and it's OK with that.


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