Scraping the Bottom of the Internet Barrel (Part I)

Whenever a stock is approaching its 52-week low, it can mean one of two things.  It’s either a business that is starting to see the wheels fall off and should be avoided like the plague, or the markets have overreacted and you now have a wonderful opportunity to buy a great company. 

In this the first of a 2 part series, we will look at eight stocks that are trading at or near their 52-week lows.  Today’s article will focus on the stocks which are justified at trading at such a low price.  While tomorrow’s article will focus on those stocks which provide large upside potential at their current low prices. 

Company	Stock Price	52-week Low	52-week High
Orbitz	$4.34	$4.14	$15.00
Blue Nile	$35.84	$35.10	$106.16
Travel Zoo	$7.39	$7.03	$28.70
Monster	$17.52	$17.46	$42.68

 

Orbitz (OWW)

Orbitz continues to face intense competition from market leader Priceline (PCLN), as well as strong economic headwinds as record high airfares seem to be discouraging travel.  Recent comments from competitor Expedia (EXPE) just confirms the belief that U.S. consumers are becoming more hesitant to take expensive vacations.  Therefore, it is very likely that we will see some disappointing news over the next few quarters as vacationers cut back on their travel plans.

Blue Nile (NILE)

It wasn’t too long ago that Blue Nile was the darling of Wall Street and trading at over $100/share. A total victim of the recent economic meltdown, their shares now are approaching $30. It’s never good to be a luxury retailer in a economic downturn and so it’s hard to see NILE’s stock price increasing in the near future.

Travel Zoo (TZOO)

Travel Zoo is one of those companies with an impressive business model, but of late has seen its share price decline from $28 to $7.  Their main product is selling advertising in a weekly email that is sent out to over 12 million subscribers.  However, over the last few quarters they have seen profitability hurt as they try to expand into Europe and Asia-Pacific.  These expansion efforts have been very costly, while producing limited top-line results.  Expect the share price to remain depressed until a break-through is seen in their international expansion efforts.

Monster (MNST)

Rising unemployment rates indicate that Monster may experience some tough sledding over the next few months.  The recent slew of announced layoffs reinforce the perception that companies are cutting back on their hiring.  The lack of demand for their services could keep downward pressure on Monster’s share price for the coming months.   

So just because a stock is trading at its 52 week low doesn’t mean that it is a good opportunity to buy.  However, in tomorrow’s feature we will take a look at 4 stocks that appear to be undervalued while trading close to their 52-week lows.

Disclosure: At the time this article was published, the author did not have a financial position in any of the stocks mentioned in this article.

Comments

[Bandwidth Hog:]

Actually, NILE is the low cost leader and provides the best value to customers, so I'd argue they benefit more than others from a tough economy. As long as people continue to make the mistake of getting married they will be ok.

2008 Jul 16 05:02 AM

[Ames Tiedeman:]

Bandwidth Hog: I agree. NILE is the new way to buy a diamond.

2008 Jul 16 07:51 AM

[Herman:]

Disagree on Monster. Times have changed since the last prolonged down cycle. Growing overseas strength and growth (>50%) will eventually negate North American weaknesses and balance out overall business.

2008 Jul 16 10:31 AM

[Nom De Plum:]

Disagree completely on MNST....have you looked at the cash this company generates....when the economy recovers and companies scramble to hire, the incremental cash flow will be huge. My only complaint is that the company is spending too much and could generate more cash. This business runs itself. New mgmt is smart and has sold businesses in the past and agree with a previous poster that international growth is an unrecognized jewel.

2008 Jul 16 11:09 AM

[bk329:]

Disagree with previous posters on MNST. Management has run the US business into the ground, to now be 4th-5th in traffic, the leading indicatror of health. gettign trounced in India, and not making much ground in the many overseas markets - if they're doing so great, why don't they release country-by-country data?

2008 Jul 16 06:08 PM

[pipstem:]

The thing with NILE, is that there will ALWAYS be pressure for men to present an engagement ring to their sweetheart. In an economy where everyone is watching what they spend, shopping online should be the obvious choice to the man who is looking to save the most money on the ring. If not the choice, I feel more and more men are at least considering eCommerce when they're ready to pop the question (no matter how un-romantic they might think it). Blue Nile fares well against it's competition once people start doing their research.

2008 Jul 23 02:16 PM