One of the interesting stories yesterday was that Yahoo might sell its core business, which got me wondering: what is Yahoo’s core business?

Interestingly, the market is puts a negative value on Yahoo’s core business, whatever it is.  Let’s take a look at some of their assets: a 15 percent stake in Alibaba worth $32 billion, a 35 percent stake in the separate publicly traded Yahoo Japan that is worth $8.5 billion and the $5.9 billion in net cash and short-term investments.

Those three assets alone come to $46.4 billion, which is a lot since the market is valuing Yahoo at $31 billion.

This is a classic ‘sum of the parts’ value investment because the value of the individual assets are worth more than the combined entity.

In theory, you could buy the company for $31 billion, sell the stakes in Yahoo Japan and Alibaba for $40.5 billion, pay 35 percent in taxes and net $26.3 billion.  If you wind down the entire remaining business and just walk away with the $5.9 billion in cash, you get $32.2 billion – a $1.2 billion profit!

But let’s say that you decide to keep the business, it’s got to be something right?  I mean, it has 200 million unique visitors per month and sells four percent of all of the ads online.

One analyst at Cantor Fitzgerald thinks that the core business is worth $3.9 billion, which means that you could get paid $1.2 billion to take on a $3.9 billion company.

This seems like a legitimate argument against market efficiency.  As I’ve said before, I do think that the market is basically efficient, but I don’t think you can explain these circumstances with the concept that investors require a high discount on uncertain future cash flows.

Markets are largely efficient, but far from perfectly so – someone ought to profit from these circumstances, but I have to admit, I have no interest in this trade.