The Best Pick For A Recovering Jobs Market

Bill is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Unemployment seems to be easing. More hiring helps drive top-line growth for staffing and payroll support companies. Stocks that would benefit from a continuation in this employment trend are evaluated below based on their growth prospects and based on how they are either cheaply valued or richly valued.

LinkedIn Detracting from Monster

Many employers are now shifting to the use of social websites to look for their employees. LinkedIn (NYSE: LNKD) is among the most popular professional social websites in the market. This service allows the recruiters to search for employees. LinkedIn allows headhunters to search from over 187 million profiles of potential employees. LinkedIn recently added the talent pipeline feature that allows the recruiters to keep track of their candidates. More than half of the total revenue of the company in 2012 came from the online recruitment division. At least two-thirds of the companies in the United States are already using Facebook to find their potential recruits.

Steps are being advanced towards finding a tool that integrates all the social websites to make searching them easier. The next step would involve the development of a tool that assists in looking for more details on a potential recruits from a number of social sites. Firms such as Entelo have introduced Entelo that crawls through social sites including Twitter and Google+ to find potential recruits for given positions. Start-ups such as BranchOut allow the users to build their FaceBook friends to search for jobs and photos showing their achievements.

According to TalentBin, more than $6,000 is spent by its corporate clients to search social media data for talent. Elliot Garms said, “No good software engineer puts his resume on Monster Worldwide (NYSE: MWW), because then they get 10 to 20 emails a day from recruiters.” Most of the talented individuals in the market often try to hide their talent. TalentBin has been one of the tools that has been used to achieve this. The traditional online job search engines have been under pressure over the past few months to introduce social aspects to their operations. Companies are looking for ways to attract talent that is hidden in most of the job search engines.

According to strategic marketing director Tom Chevalier, “Monster has evolved far beyond the traditional job board model.” Other sites such as CareerBuilder have introduced a Facebook referral link that allows the users to share the open positions in their companies via social sites. This is a step that has become the emerging trend in most of the companies because most job boards are seeking to compete with LinkedIn and the use of social media provides one such platform for efficiently achieving this.

Monster Prepares for Sale

Monster Worldwide’s management hopes to find a buyer for the entire firm. This process may involve selling the core business after selling non-core assets first in order to streamline a takeover.

Monster share price rose 10% after disclosing its plans to restructure by shedding disappointing business units and seeking a buyer for its ChinaHR unit.  The company wants to cut losses in the developing markets and focus on its core domestic business. Monster has been cutting costs and downsizing its workforce since March due to declining revenues lost to competitors and the economic slowdown in Europe. Monster’s changes are expected to shed costs by another $130 million annually.

The company also made a $216 million goodwill writedown in the third quarter. MKM Partners analyst Eric Handler said, “It looks like they’re trying to make it easier for the company to be sold and sell off pieces to make the company more attractive as a whole”.

Monster bought ChinaHR for a total of $243.9 million. Avondale Partners analyst Randle Reece, noted that ChinaHR’s market share considerably declined since Monster finished its acquisition in 2008.

Monster’s third quarter’s sales declined to $221.7 million, leading to a net loss of $194.2 million ($1.75 per share), a reversal from last year’s income of $31.8 million (26 cents per share). Sales from the North America and International business units have declined by 6.3% and 16% to $115.5 million and $87.5 million, respectively.

Monster has problems, but investors should rejoice in Monster’s management’s desire to sell the company. Monster’s management and board members should be applauded for pursuing transactions that will return capital to shareholders.

Valuation

We can compare employment-related stocks on the basis of valuation since they represent different ways to play strengthening employment. LinkedIn collects revenues by charging for premium tools that help employers search candidates for job openings, making LinkedIn a kind of human resources company. Automatic Data Processing (NASDAQ: ADP) and Paychex (NASDAQ: PAYX) are payroll processing stocks that would benefit from more employment. Companies have to advertise job openings, providing revenue for the online job posting site Monster Worldwide. Staffing firms also benefit from declining unemployment. Manpower and Robert Half are staffing & outsourcing industry stocks.

Consider valuation multiples of these stocks:

Ticker

Company

P/E

P/S

P/B

P/FCF

D/E

MWW

Monster

9.33

0.76

0.71

NA

0.21

MAN

Manpower

17.39

0.17

1.38

125.28

0.29

PAYX

Paychex

20.89

5.16

6.9

70.11

NA

ADP

Automatic Data Processing

20.97

2.66

4.55

55.37

NA

RHI

Robert Half

24.21

1.16

5.63

30.48

NA

LNKD

LinkedIn

754.33

14.54

14.64

266.97

NA

Monster is clearly the cheapest stock on the basis of its lowest price-to-earnings multiple, and price-to-book multiple. The only stock that has a lower valuation multiple is Manpower on the basis of its lower price-to-sales multiple.

In contrast, LinkedIn is just too expensive. Yes, it is kicking Monster’s butt. However, its success, future growth, and future profitability are by no means certain or guaranteed. This is still a stock, a risk asset, and therefore should not trade at astronomical price multiples.

Conclusion

Investors seeking to benefit from a recovering labor market should consider Monster Worldwide as a speculative investment. It trades at lower price multiples than other employment-related stocks and could fetch a higher price as an acquisition.


BillEdson11 has no position in any stocks mentioned. The Motley Fool recommends Facebook and Paychex, Inc.. The Motley Fool owns shares of Facebook. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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