Throw This Stock Away

The house rules are simple in this weekly column.

  • I bash a stock that I think is heading lower.
  • I offset the sting by recommending three stocks as portfolio replacements.

Who gets tossed out this week? Come on down, TechTarget (Nasdaq: TTGT  ) .

Rings around this target
Shares of TechTarget popped 15% higher today, as investors ignored a disappointing quarterly report and focused on TechTarget's self-tender offer to buy back 10 million of its shares at $6 apiece.

With 43.2 million diluted shares outstanding, the buyback is subtantial. However, investors are likely to resume their losing ways once TechTarget buys back a quarter of their shares at a premium.

TechTarget runs dozens of information technology websites, attracting 9 million registered users to its 80 niche-specific destinations.

This may seem to be an appealing business given where we are in the economic cycle, but any revival in the IT sector isn't showing up at TechTarget.

Its latest quarter was a dud. Revenue actually fell 5% to $22 million. TechTarget posted a small loss, and even a heavily adjusted profit clocked in lower than last year's results under similarly kind lighting.

A dramatic plunge in event-related revenue killed the quarter, but even the company's bread-and-butter online business -- accounting for 86% of total revenue -- rose by a mere 4% compared with last year's depressed showing.

Despite the international sizzle of acquisitions in China and Australia and the promise of improvement during the current quarter, this still seems to be a company that announced that it was buying back its stock because nobody else wants to do it.

One can argue that it shouldn't be that way. Analysts see TechTarget earning $0.24 a share this year on its tweaked basis, after earning $0.17 a share in 2009. Next year's bottom-line target is $0.30 a share. Chomping away at the number of outstanding shares should very well lead to analysts increasing those targets.

Unfortunately, TechTarget will spend most of its $85 million in cash on the repurchase at a time when consolidation sirens suggest that it may be more prudent to snap up smaller sites.

Either way, you don't want to be on the wrong side of this trade after the self-tender passes.   

Good news
As I do every week, I don't talk down a stock unless I have three alternatives that I believe will outperform the company getting the heave-ho.

  1. Dice Holdings (NYSE: DHX  ) : The company behind the Dice.com tech jobs listing site, which masquerades as a community hub, reported results last week. Revenue was up 29% during the quarter, with profits doubling. Back out acquisitions, and organic revenue still climbed an impressive 23%. Now that's the kind of growth that investors expect and deserve. Even the smaller Geeknet (Nasdaq: GKNT  ) hub is growing nicely -- with revenue up 36% in its latest quarter -- though it didn't make the cut as a replacement because the nerds are still dressing up their income statements in candy apple red.
  • Marchex (Nasdaq: MCHX  ) : There's nothing wrong with owning a diversified portfolio of domain names. Internet Brands (Nasdaq: INET  ) shares rose significantly two months ago after a generous buyout offer. Marchex is rich in valuable domains -- something that should come in handy now that Amazon.com (Nasdaq: AMZN  ) paid a pretty penny for a company that was able to turn Diapers.com and Soap.com into an e-tail empire worth $545 million to the world's leading online retailer. Marchex also offers a wide range of services to drum up local commerce for advertisers.  
  • Google (Nasdaq: GOOG  ) : Why not Big G? We may be talking about small tech names, but why not the world's online leader? Google shares hit a fresh 52-week high this morning, as investors continue to soak in the company's dominating financial performance. Playing up the tech angle, Google's Android is becoming the smartphone platform of choice for handset makers, wireless carriers, and developers. Why not? It's an open platform that truly levels the playing field in every sense. It's a sweet treat from a surprisingly nimble -- and fast-growing -- giant.

I'm sorry, TechTarget. Buy your shares at $6 a pop if you want to. I just can't do it.

Google is a Motley Fool Inside Value choice and a Motley Fool Rule Breakers selection. Amazon.com is a Motley Fool Stock Advisor recommendation. The Fool owns shares of Google. 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.

Longtime Fool contributor Rick Munarriz doesn't mind taking out the garbage every so often. He does not own any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


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