The Dow Jones Industrial Average (^DJI 0.69%) was just above breakeven as of 11:30 a.m. EDT. As the market moved into the green, a few tech stocks were experiencing significant rallies, including Yahoo! (NASDAQ: YHOO) and Micron Technology (MU 3.06%). Facebook (META 2.98%) was seeing notable volume.
Yahoo! rises on analyst upgrade
Yahoo! shares rose more than 2.3% in early trading after Piper Jaffray upgraded the Web portal. Piper Jaffray had been neutral on Yahoo!, but raised its rating to overweight in a note to clients released early on Monday. Piper Jaffray believes Yahoo! shares could be worth $43 -- about a 22% premium from current levels.
Piper Jaffray's upgrade is primarily based on its optimistic outlook for Alibaba, the Chinese e-commerce giant. Yahoo! owns 22.6% of Alibaba, about half of which it is required to sell in Alibaba's upcoming IPO. That will generate substantial cash for Yahoo! -- recent estimates put the total at about $10.4 billion. And Piper Jaffray's expects that Alibaba's valuation will rise as its IPO date nears.
Optimism for Alibaba should result in appreciating Yahoo! shares, though what the company actually does with the cash remains to be seen. Yahoo! once owned 40% of Alibaba, but sold about half of its stake in 2012. Most of the cash from that sale was used to repurchase shares -- directly benefiting investors. But Yahoo! has been on an acquisition streak lately and could plow the Alibaba cash back into its core business.
Source: Derzsi Elekes Andor via Wikimedia Commons.
Facebook flat amid emotional controversy
Facebook shares were largely unchanged early in the session despite the recent controversy generated by a secret psychological study.
In 2012, Facebook researchers secretly tinkered with the news feeds of some 700,000 users; it adjusted the algorithm so as to showcase a disproportionate number of positive or negative stories, then looked for signs of emotional changes in test subjects. Ultimately, researchers concluded that Facebook stories could sway the user's mood, reinforcing emotions with a contagion-like effect.
Although less than 0.1% of users were impacted by the study, it has generated a degree of backlash, with some observers accusing Facebook of crossing ethical boundaries. There is the question of whether Facebook's researchers violated the principal of informed consent -- per the ethical rules of psychological studies, test subjects need to be aware of their participation.
Ethical questions aside, the controversy generated by the study poses some degree of risk to Facebook. If enough people find fault with Facebook's behavior, they may leave the social network, or at least significantly reduce their engagement. Competitors, which have thus far been unable to gain a foothold, could play on Facebook's willingness to manipulate its users' experience on the site.
For the time being, there is no sign that this story will have a lasting impact on Facebook. Still, investors should be mindful of the potential negative ramification.
Micron jumps on positive note
Micron Technology shares rose nearly 4% after Credit Suisse added the stock to its "Focus List."
Credit Suisse is positive on Micron Technology, and has been for some time. Adding the memory-chip maker to its Focus List, however, may signal an even greater belief in the relative strengths of the company. Credit Suisse has a $50 price target on Micron, suggesting a premium of more than 50% from current levels.
Credit Suisse continues to like the company's diversification efforts and potential for gross-margin expansion. Other analysts and famed investors have also been bullish on the stock. Hedge fund manager David Einhorn, for example, has a large position in the company.
Micron shares have risen more than 125% in the last year. Yet, despite its recent rally, Micron remains relatively cheap on a valuation basis -- trading with a below-market price-to-earnings ratio.
