Yellow Pages

February 5th, 2009 by Potato

I haven’t talked much about individual stocks lately, largely because I’ve been proven to be pretty terrible at evaluating them (or at least, no better than just buying the market as a whole, as I’ve been dragged down with it). However Yellow Pages (YLO.UN) took another 10% hit yesterday, and is down 20% on the month, and I just can’t wrap my head around why. There’s been very little news lately, though apparently BMO released a research report putting it as an “underperform” with a $4.50 price target. I don’t have access to it, so I can’t see the reasoning, but that sounds downright crazy. TD also released a report today, rating it an “action list buy” with a target of $9 (it closed at $5.25).

I find I agree with TD’s report, though of course YLO is my biggest single holding so I’m bullish on it to begin with (and have been buying all the way down). Basically, things are going to be a little rough in the autotrader, etc., segment, but the basic Yellow Pages business should roll along just fine and generate enough cash to cover the payouts, which is what really matters to most investors in these things. Very roughly speaking, the payout ratio is around 80%, and the “vertical media” part makes up <20% of revenues, so as long as the core business stays steady, the payout should be fine until 2011. Of course, investors these days will sell at the drop of a hat, any hat. So a negative report from BMO as well as news that “recession-proof” companies like Kraft can still manage to find huge losses can tank a stock (though the market as a whole didn’t seem too concerned by Kraft’s earnings).

These low prices are tempting me to do something stupid, like borrow money to buy more (20% return when it only costs 5 – 5.5% to borrow??), or sell something else to concentrate on YLO (hasta la vista, BCE), but I’m already a little uncomfortable with how much YLO I own — if I’ve made a mistake in my reasoning (something that’s happened an unfortunate number of times over the last year) and it tanks (moreso than it already has) then that could start going from unfortunate to catastrophic. I think I’m going to sit around and do nothing (ok, maybe I’ll fantasize about loading up at $5 and then raking in the cash when it inevitably goes back above $7).

Comments are closed.