Tuesday, April 15, 2008

Is There a Monster in Your Portfolio?

Yesterday on TickerHound.com, a member asked: “What do you think about Monster.com?“.

I haven’t thought about this company for a long time. But once I started to really take stock of our current economic climate and Monster’s business model, I began to see why I needed to tell all my friends to double check their portfolios and make sure they weren’t holding onto any shares of this one.

Monster Worldwide (Nasdaq: MNST) is one of the world’s largest online job databases. The company is one of the few successful holdouts of the dot-com era and performed rather well after the market began to make a comeback in 2003.

The stock went from a low of $8.57 per share in March of 2003 to a high of $57.40 in April of 2006 - that’s a 569% return in under 3 years. Not bad, not bad at all.

But to keep all this in perspective, the stock was at $91 a share in March of 2000. So over the course of 6 years, the stock was actually down about 37%. Reason being: the recession of 2001 and the subsequent multi-year bear market that followed.

Monster, being so tightly correlated to the job market, got hit so hard because as unemployment went up and companies stopped hiring, their site provided very little value to employers and employees alike.

So now, we’re at the beginning of 2008, it’s pretty obvious we’re heading into a recession (no one knows how bad this could get) and I feel like I’ve seen this movie before.

Many people would tend to agree - Monster’s already down about 30% since the beginning of 2008.

Some may call that oversold, I call it “the tip of the iceberg“.

If we were simply talking about an equities market “correction”, then I’d say we’ll be coming out of the downturn by the 3rd quarter. But we’re talking about a crisis in the credit markets here - we haven’t had to deal with this since the 70’s and when you stack inflation on top of it we’re looking at a “perfect storm” scenario.

So this isn’t even a matter of performing deep financial analysis or picking apart the chart to identify a pattern. Let’s use some common sense (an underused asset in many investors’ tool boxes) here and see if we can figure out what’s going to happen to Monster…I think asking ourselves a few questions will be a good way to proceed:

  • Do you think companies are going to be hiring aggressively or laying people off?
  • Do you think they’re going to want to pay to list their jobs or will they simply use word of mouth to attract the relatively small number of employees they might hire?
  • Is it a good sign or a bad sign when 3 - 4 top executives leave the company over the last 3 months?

I feel like I’m watching a rerun of 2001 here and Monster’s on its way to $10 per share!

Now, I’ve never been one to go short a stock…it’s just not something I’m comfortable doing.

But you should definitely have a look at your portfolio, because if you have “a Monster” lurking in there, it’d be a smart move to rid of it and get rid of it quick!

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