Now, the last thing I want this website to turn into is a place where I recommend all of the stocks I write about. If you want that, just watch Jim Cramer’s show. Remember when Yahoo! rejected a reasonably priced ridiculously high offer from Microsoft just over a year ago? Jerry Yang felt $30+ per share wasn’t a reasonable valuation for his company. It has been rumored that Jerry Yang also felt that $30 wasn’t a reasonable valuation for his half-full can of flat Pepsi.

Well, Yang isn’t there anymore, but Yahoo’s share price has since dropped to about half of that proposed takeover amount. I believe that the market has kept a $2-3 takeover premium on the stock, but the chances Microsoft makes another run at the company are remote. Yahoo continues to lose search market share to Google and the aforementioned Microsoft, which is spending $300 million to advertise its new search engine “Bing”. Yahoo’s ad platform is terrible and the company is barely posting a profit. Google’s growth is being slowed by a soft economy and reductions in marketing budgets, but at least its revenues and profits continue to climb. Google’s P/E of around 30 is lofty, but at least the company is generating positive earnings.

So why would you buy Yahoo at these levels? Maybe you think that Microsoft will make another run and offer shareholders $25 per share? As I mentioned, I highly doubt Microsoft wants anything to do with Yahoo anymore – spending $300 million to market its own new search engine has to be considered a pretty strong signal that it would rather build search market share from the ground up than pay a premium to purchase it. But maybe you just think that Yahoo is an innovative company that will turn itself around as the economy strengthens? In that case, buy some shares of a search engine that actually innovates and has growth potential (Google or even Baidu fit those criteria). Yahoo will continue to wallow in it’s own mediocrity and I don’t want to own mediocre stocks.

The Stock Guy’s Official Ranking: 2 out of 10