Back to top

Image: Bigstock

3 Advertising Stocks Poised to Escape COVID-19-Led Industry Weakness

Read MoreHide Full Article

Economic recovery leading to a rise in manufacturing and service activities, along with increased digital marketing services and success of the work-from-home trend, is enabling the Zacks Advertising and Marketing industry to counter the prevailing pandemic-induced challenges.

Remarkably, customer-centric approaches to business, digital strategies and technology investments are helping Omnicom Group Inc. (OMC - Free Report) , Harte Hanks, Inc. (HHS - Free Report) and WPP plc (WPP - Free Report) to sail through these testing times.

About the Industry

The Zacks Advertising and Marketing industry comprises companies that offer a range of services, including advertising, branding, content marketing, digital/direct marketing, digital transformation, financial/corporate business-to-business advertising, graphic arts/digital imaging, healthcare marketing and communications, and in-store design services. Prominent players from the industry include The Interpublic Group of Companies and Omnicom.The pandemic will continue to change the way industry players have conducted businesses and delivered services so far. Currently, the industry’s key focus is on channelizing money and efforts toward media formats and devices. To position themselves suitably in the post-pandemic era, service providers are increasing their efforts toward formulating strategic initiatives and identifying sources of demand.

What's Shaping the Future of the Advertising Industry

The Omicron Variant Increasing Concerns: The industry’s revenues have declined substantially over the past year due to the pandemic-induced reduction of social events and gathering restrictions. With the Omicron variant spreading and the pandemic signaling to stay for a long haul, the industry is expected to remain under pressure in the days to come.

Economic Recovery to Offset Some Pressure: Although a recovering economy and manufacturing and non-manufacturing strength are likely to benefit the industry, demand for marketing and advertising services, especially in the travel and retail sectors, will take a longer time to revive.

Digital Marketing Gathering Steam: Amid the crisis, digital media consumption has shot up, with consumers spending more time indoors on various media platforms and streaming video services. Thus, agencies offering digital marketing services stand to gain, as these firms are better positioned to address this rapid change in customer preference. According to Statista, Digital advertising spending in the United States is projected to reach $153 billion by 2024, marking more than a 15% jump from the $132.5 billion registered in 2019.

Zacks Industry Rank Indicates Gloomy Prospects

The Zacks Advertising and Marketing industry, which is housed within the broader Zacks Business Services sector, currently carries a Zacks Industry Rank #194. This rank places it in the bottom 23% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates underperformance in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.

Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock market performance and current valuation.

Industry lags S&P 500, Outpaces Sector

Over the past year, the Zacks Advertising And Marketing industry lagged the S&P 500 composite but outperformed the broader sector.

The industry has appreciated 16.6% compared with the S&P 500 composite’s rally of 24.4% and the broader sector’s 28.1% decline.

One-Year Price Performance

Industry's Current Valuation

On the basis of the forward 12-month price-to-earnings (P/E) ratio, which is commonly used for valuing advertising and marketing stocks, the industry is currently trading at 12.3 compared with the S&P 500’s 21.04 and the sector’s 28.18.

Over the past five years, the industry has traded as high as 16.67X, as low as 9.08X, and at the median of 12.3X, as the charts below show.

Price to Forward 12 Month P/E Ratio

3 Advertising Stocks to Consider

We present three stocks that are well-positioned for near-term growth.

Omnicom: The company is a provider of advertising, marketing and corporate communications services. Consistency and diversity of operations and focus on delivering consumer-centric strategic business solutions ensure long-term profitability for Omnicom. The company has divested underperforming and non-core businesses and reorganized to meet clients’ ever-transforming needs.

Omnicom currently carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for the ongoing year’s EPS has remained unchanged at $6.25 in the past 60 days. The stock has jumped 17.9% over the past year.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. 

Price and Consensus: OMC

Harte Hanks: This company provides various multi-channel marketing services in the United States and internationally. The company is currently benefiting from investment in technology infrastructure and new business wins. It anticipates considerable margin improvement going forward with the consolidation of fulfillment operations into the Kansas City facility.

Harte Hanks also carries a Zacks Rank #2 with The Zacks Consensus Estimate for the current-year EPS moving 58.2% north in the past 60 days. Shares of the company have rallied 220.5% in the past year.

Price and Consensus: HHS

WPP: The company is a provider of communications, commerce and technology services. Its service executions have been robust through the pandemic. The company sees strong growth opportunities in the communications areas such as digital media, e-commerce media and programmatic.

WPP currently carries a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for the current-year EPS has moved 1% north in the past 60 days. Shares of the company have rallied 33.6% in the past year.

Price and Consensus: WPP

See More Zacks Research for These Tickers

Normally $25 each - click below to receive one report FREE:

Omnicom Group Inc. (OMC) - free report >>

Harte Hanks, Inc. (HHS) - free report >>

WPP PLC (WPP) - free report >>

Published in