The stock market is dominated by traders and investors. Traders simply focus on today’s market action. Investors hold a much broader view, finding winning stocks that will ride future trends. In recent sessions, traders have found plenty to dislike about employment search firm Monster Worldwide (NYSE: MWW). Shares were crushed last week and now are squarely back in bargain territory for long-term investors.

Monster is the leading provider of online jobs listings in the United States, a position further strengthened by an August 2010 acquisition of Yahoo!’s (Nasdaq: YHOO) Hotjobs.com. Monster also has a significant presence in Europe and Asia, most notably in China.

As you’d guess, this stock has been a top performer when employment trends are strong and a laggard when employment trends are weak. Shares fell below $10 in 2003 when the U.S. employment picture was weak, though shares zoomed to $60 by 2006 when the economy was on stronger footing. At the time, Monster was in the middle of a three-year run that saw sales rise from $594 million in 2004 to $1.3 billion by 2007. Shares eventually fell victim to the global economic crisis, moving down to $6 by early 2009.

Sensing that the company might be on the cusp of another employment-fueled surge in revenue, investors started to pile into this stock this past fall and shares rose 150% in just four months. With that kind of gain, investors were bound to be disappointed by the reality of a still-weak job market when fourth-quarter results were released. And that’s precisely what happened: Monster posted a series of solid growth metrics for both the fourth quarter and for 2011, but management clearly took a cautious tone regarding the current job market. After all, unemployment remains above 9% and even the most frustrated employees are staying put right now.
Yet even as investors clearly got carried away in recent months, the basic investment thesis remains intact: Monster remains the best pure play investment on eventual employment gains.

#-ad_banner-#The road ahead
To be sure, the employment picture will be slow to rebound. Unemployment may fall to 8% by the end of this year and may fall another percentage point by the end of 2012. Economists don’t think we’ll hit 6% unemployment before 2013 or 2014. That should yield steady 10% to 20% annual revenue gains for Monster (in contrast to the 30% to 40% revenue gains seen during the middle of the past decade).

But it’s the bottom-line that you need to track of. Much of the company’s development is complete and new revenue is quickly flowing to the bottom line for this automated business model. EBITDA is expected to rise at least 75% in 2011. Subsequent EBITDA gains should exceed 20%, assuming unemployment drops by a percentage point each year and sales rise by 10%.

The Iannuzzi Factor
Several years ago, I worked as a sell-side analyst covering Symbol Technologies. It was a company in distress, and the board brought in Sal Iannuzzi to turn things around. Within a few years, he greatly improved Symbol’s produce line-up, aggressively pared costs and ultimately paved the way for a sale to Motorola Mobility (NYSE: MMI) (then known simply as Motorola) at a price well above what most thought Symbol would get in a buyout.

Mr. Iannuzzi appears to working on a similar plan at Monster, where he is now chairman and CEO. Costs have been pared where possible, and Monster has beefed up its offerings to stay ahead of peers. Monster has invested “in rebuilding many of its products over the past 12-18 months, and our survey shows that employers have noticed material-to-significant improvement across Monster’s major products,” note analysts at Citigroup. Iannuzzi has also turned over Monster’s underperforming sales force during the past two years, just as he had done at Symbol.

So is he looking to sell the business as was the case with Symbol? His 20 years as a banker prior to joining Symbol have schooled him on when to buy and sell businesses. It’s far too cheap to sell right now, but the company would likely fetch a nice premium when the economy is on stronger footing.

Action to Take –> To correctly value this business, you need to extrapolate current trends to see where business is headed in the next few years. By my math, EBITDA could hit $300 million by 2012 (about $2.40 a share). Apply a multiple of 10 to that figure, and you arrive at a $24 price target — roughly 50% above current levels. I envision significantly higher upside beyond that time frame. Monster appears to have a nice mix of solid 12-month upside and explosive long-term upside for investors.

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