Under $6 Stock Could Score Traders Double-Digit Profits in 3 Months: MWW

When barcode scanner maker Symbol Technologies named Sal Iannuzzi as its new CEO in January 2006, investors knew that this mergers and acquisitions (M&A) veteran served one main purpose: To whip the company into fighting shape and help sell the business at a nice premium. Within a year, Symbol was sold at $15 a share (more than 50% higher than the pre-Iannuzzi trading level) to Motorola, which was subsequently acquired by Google (NASDAQ: GOOG).

Why should you care about Sal Iannuzzi? Because he's doing it again. As chairman, president and CEO of employment-search firm Monster Worldwide (NYSE: MWW), he's been actively pursuing a buyer for the company for more than a year now. As it turns out, finding a buyer has been much harder for Iannuzzi this time, but he does have an ace up his sleeve, thanks to a cash-rich balance sheet.

The LinkedIn Effect?

Through the prior economic expansion, Monster's various employment boards were the go-to site for many job seekers. Revenues grew over 20% a year from 2005 through 2007, reaching $1.3 billion. And it was always a very profitable business, as free cash flow was routinely in the $100 million to $200 million range.

But the economic slowdown and resulting spike in unemployment led many job seekers to stay put. Rising competition from social media site LinkedIn (NYSE: LNKD) surely hurt as well. These days, Monster's revenue base is notably smaller at around $890 million.

Since then, this stock has collapsed, eventually plunging to $4 before a modest rebound in early May.

Remarkably, Iannuzzi is still searching for a buyer, and at current levels, potential buyers must surely be more intrigued.

Looking at recent results, Monster is a lot healthier than the dismal stock chart might imply. While Iannuzzi was shopping the company, he tightened up the ship by exiting unprofitable operations in Turkey, Brazil and Mexico, while paring U.S. expenses by $50 million. And Monster has been heavily investing in its core site to enhance its appeal to job seekers. In a recent press release, the company noted that it is "developing a number of key initiatives that are expected to be introduced over the next 6 months."

The timing may prove to be fortuitous as the job market is finally starting to build a head of steam (with expectations of another decent monthly employment report to be released Friday). Potential buyers may start to sense that this distressed asset is actually poised for a cyclical recovery.

But Monster now has a "Plan B" if a buyout fails to appear -- in the form of a $200 million stock buyback. This is a company that already shrank its share count by 9 million to 114 million in 2012, and at current prices, a new $200 million buyback would take that share count down by 36 million to around 80 million.

What would Monster garner in a buyout? Probably not the $11 or $12 a share it was seeking last year, but $7 or $8 would likely do the trick. That equates to around one times sales, which is quite reasonable for a company with 54% gross margins and headed for a cyclical economy-led recovery.

Even if this stock doesn't get taken out in a few months, shares are still attractive for investors with a longer time frame. Buying back $200 million in stock would provide support at current levels, and the smaller share count would enhance what this company could fetch in a year or two when the economy is stronger and job seekers become more active.

Whether it's Plan A or Plan B, this stock appears to have short-term or medium-term upside.

Recommended Trade Setup:

-- Buy MWW up to $6
-- Set stop-loss at $4.80
-- Set initial price target at $7.50 for a potential 25% gain in three monthsPlease share this article