Money Morning's oversold stock pick of the week is careers website provider Dice Holdings Inc. (NYSE: DHX).
Sometimes stocks get beaten down unfairly - but they're actually a great value. The share-price dip then gives investors an amazing entry point into a good long-term investment.
Money Morning Chief Investment Strategist Keith Fitz-Gerald thinks Dice stock is misunderstood by Wall Street. He thinks DHX stock is well-positioned to gain from a particular trend developing in Europe.
Dice Holdings: About the Company
Dice Holdings traces its roots to a company called Data Processing Independent Consultants Exchange, which launched in San Francisco in 1990. Originally it was a consulting firm for recruiters and technical contractors. In 1996 the company transitioned to the Internet and acquired the address "dice.com." Earthweb, which provided career development resources to IT professionals, acquired Dice in 1999. The deal moved the headquarters to New York. Two years later the parent company changed its name to Dice, Inc. The company went private in 2003, and started to acquire other job search companies. Dice became public again with an IPO in 2007. And it kept buying companies; it has made 11 acquisitions since 2004. Today Dice Holdings operates job web sites around the world that specialize in industries such as tech, financial services, security clearance, healthcare, hospitality, and energy. It makes money by charging companies to list on these sites, where they can target the exact type of workers they need. Dice also runs targeted job fairs. The company employs about 830 people. Dice has a market cap of $465 million.
Dice Stock: Why It's Oversold
Dice stock is down 25% since last November. The first leg of the fall began in response to the drop in oil prices. That sounds crazy, but two of Dice's job websites, Rigzone and OilCareers, focus on the energy sector. When it became clear oil companies would need to scale back in response to the decline in oil prices, DHX stock began to feel sympathy pains. That took 13.4% out of the Dice stock price. Then Dice reported earnings on Jan. 27. The company slightly missed on both income and revenue. But guidance was the real kicker. The company forecast for 2015 earnings was several cents lower than what analysts had projected. On top of that, the company said margins would contract in 2015. That flurry of punches dropped Dice stock 16% over the following three trading sessions. And aside from disappointing Wall Street, investors also are worried that the growth of LinkedIn Corp. (Nasdaq: LNKD) will come at the expense of the sites that Dice runs.
But investors have misread what's happening with Dice...
Why DHX Stock Is a Buy
At first glance, it does look like Dice stock has a ton of negatives. But let's look a little closer. Take Dice's energy industry woes. The company acknowledges the short-term hit, but pointed out in its earnings call with analysts that when oil prices stabilize, so will the oil and gas sector job market. And while Dice's earnings appear to be going flat in 2015, that's because the company is transitioning from growth by acquisition to organic growth. Dice CEO Michael P. Durney said Dice was expanding its sales staff while developing its Open Web technology, a form of Big Data designed to help recruiters. He said the company would continue to invest in tools that will contribute to future growth. While that might make for lousy earnings in the short term, the strategy should start to pay off in late 2015 and beyond. As for LinkedIn, it's a generalist. Dice is a specialist creating recruitment tools aimed at its niche customers. There should be room for both.
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And finally, there's the trend in Europe Fitz-Gerald has talked about. He believes the easy money policies of the European Central Bank (ECB) will spur spending in healthcare, energy, and tech companies - all segments Dice focuses on.
"Those are all 'must-have' companies that Europe literally cannot live without," Fitz-Gerald said. "[ECB President Mario] Draghi's monetary madness will boost them significantly."
He also likes the high level of institutional ownership in DHX stock - 86.8% of all shares.
"That's a huge vote of confidence from seasoned analysts who have the power to move markets," Fitz-Gerald said.
Investing in Dice Holdings Stock (NYSE: DHX)
With the direction of oil prices uncertain and a good possibility that the current quarter's earnings again will make Wall Street unhappy, Dice stock has a chance to slip to about $8.11. Therefore, investors should buy half of their intended position now and half if DHX stock falls to $8.11 or lower. Even at current levels - Dice stock closed at $8.61 today (Friday) - investors could see a gain of 16.7% at the one-year target price of $10.04. But given a longer time horizon of two to three years, DHX stock is likely to breach its 2014 high of $11.40.
Another Great Buying Opportunity: Last week we looked at agricultural and construction equipment maker CNH Industrial (NYSE: CNHI). CNH got hit by falling commodity prices for corn, wheat, and soybeans. But there are good reasons to believe this company is on the brink of a big turnaround...
Follow me on Twitter @DavidGZeiler.
About the Author
David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.
Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.
Dave has a BA in English and Mass Communications from Loyola University Maryland.