Yahoo! Inc. (YHOO): The Benefit of Diversification

Jos. A. Bank Clothiers Inc (NASDAQ:JOSB) announced that profits for fiscal year 2012 will be 20% lower than a year ago. The company blames a variety of factors for this, including Hurricane Sandy, the presidential election, the fiscal cliff, and the unseasonably warm weather. Shares fell 18% early Monday morning upon the news. The company’s strategy is sneaky; it generally marks prices up and then gives free items away with the purchase of an over-priced item. However, this strategy may actually tarnish the brand. When people walk out with free items, do they not think less of the free item they received? Can the company continue their “Buy one suit, get two free” philosophy?

Despite the apparent deficiencies above, the stock has performed very well in the past decade. They have consistently out-performed competitors, and even the S&P 500 by over 500% in the past decade. The biggest question for Jos. A. Bank is how does a growing company like them continue to expand its market share? The company hasn’t done a very good job of this in the past two years. Its stock has shown this, as it is down almost 17% in the past year.

Finally, the company is debt free, shows cash on the balance sheet, maintain double digit net margins, and plans to open an additional 45-50 stores in 2013. The question is whether or not they can grow the market. Their strategies have paid off well up to this point, but when will they run out of people to market too?

The Foolish Conclusion…

These three companies all have issues to overcome, as well as some bright spots. I would be very hesitant to invest heavily in any of them, but open minded to investing with the goal of diversification. Jos. A. Bank’s might have tapped out their market, but have performed very well historically. Harley Davidson may be a victim of their own success as the stock is now pretty pricey. Yahoo! has very stiff competition and lacks a market for virtually anything mobile – yet they seem to have found a very good CEO. Remember, don’t put all your eggs in one basket – invest with diversification in mind.

The article The Benefit of Diversification originally appeared on Fool.com and is written by Tyler Wofford.

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