July 25, 2024

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3 Advertising & Marketing Stocks to Watch Amid Industry Woes

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The rise in service activities, increased digital marketing services, and the success of the work-from-home trend enable the Zacks Advertising and Marketing industry to counter the prevailing revenue softness.

Customer-centric approaches to business, digital strategies, and technology investments are helping Omnicom Group Inc. OMC, WPP plc WPP and Harte Hanks, Inc. HHS to sail through the current testing times.

About the Industry

The Zacks Advertising and Marketing industry comprises companies that offer an extensive 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 Interpublic and Omnicom. The pandemic has changed the way industry players have conducted business 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 Industry?

Economic Recovery: The sector is a major beneficiary of the broader economy and service activities. According to the Bureau of Economic Analysis, GDP grew at an annual rate of 2.5% in 2023 compared with 1.9% growth in 2022. Economic activities in the non-manufacturing sector are in good shape. Till May, The Services PMI measured by the Institute for Supply Management has stayed above the 50% mark in 46 of the past 48 months.

Reviving Demand: The industry is mature, with demand for services remaining stable over time. Revenues, income, and cash flows are anticipated to gradually reach the pre-pandemic levels, aiding most industry players to pay out stable dividends.

Digital Marketing Gathering Steam: Digital media consumption has increased, with consumers spending more time on various media platforms and video-streaming services. Thus, agencies offering digital marketing services stand to gain, as these firms are better positioned to address the rapid change in customer preference.

Zacks Industry Rank Indicates Dull Near-Term Prospects

The Zacks Advertising and Marketing industry, housed within the broader Zacks Business Services sector, currently carries a Zacks Industry Rank #156. This rank places it in the bottom 37% of 249 Zacks industries.

The group’s Zacks Industry Rank, which is 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 two to one.

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’s Price Performance

Over the past year, the Zacks Advertising and Marketing industry has declined while the S&P 500 composite and the broader sector witnessed growth. The industry has declined 17.1% against the S&P 500 composite’s growth of 23.7%. The broader sector has gained 13.1% in the same time frame.

One-Year Price Performance

Industry’s Current Valuation

Based on 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 9.14X compared with the S&P 500’s 21.5X and the sector’s 23.97X.

Over the past five years, the industry has traded as high as 16.99X and as low as 7.52X, with the median being 10.83X, as the charts below show.

Price to Forward 12 Months P/E Ratio

3 Advertising Stocks to Consider

Here, we have presented three stocks that are well-positioned for near-term growth:

Harte Hanks: This global marketing services company currently sports a Zacks Rank #1 (Strong Buy). HHS is currently benefiting from strong customer relationships and stable revenues. The company has a strong sales pipeline and an increasing presence in the small and medium-sized business sectors.

The Zacks Consensus Estimate for the company’s 2024 EPS has been revised 33% upwards over the past 60 days.

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 the long-term profitability for Omnicom. It has divested underperforming and non-core businesses and reorganized them to meet clients’ ever-transforming needs.

The Zacks Consensus Estimate for the company’s 2024 EPS has been revised 0.4% over the past 60 days. It currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. 

WPP plc: This provider of communications, experience, commerce, and technology services continues to win creative and media assignments from leading global organizations. Its net new business performance remains in good shape.

The Zacks Consensus Estimate for the company’s 2024 EPS has increased 2% over the past 60 days. The company currently carries a Zacks Rank #2.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Omnicom Group Inc. (OMC) : Free Stock Analysis Report

Harte Hanks, Inc. (HHS) : Free Stock Analysis Report

WPP PLC (WPP) : Free Stock Analysis Report

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