Top 3 stocks to watch from the advertising and marketing industry – April 26, 2022
The economic recovery leading to increased manufacturing and service activities, along with the rise of digital marketing services and the success of the work-from-home trend, is enabling Zacks’ advertising and marketing industry to counter the challenges brought about by the pandemic.
Remarkably, customer-centric business approaches, digital strategies and technology investments help Harte Hanks (HHS – free report), The Interpublic, Inc. group of companies (IPG – free report) and WPP plc (WPP – Free report) to get through these difficult times.
About the industry
The Zacks advertising and marketing industry includes companies that provide a wide range of services, including advertising, branding, content marketing, digital/direct marketing, digital transformation, business-to-business advertising financial/corporate, graphic arts/digital imaging, healthcare marketing and communications, and in-store design services. Major players in the industry include The Interpublic Group of Companies and Omnicom. The pandemic will continue to change the way industry players have conducted business and provided services so far. Currently, the industry’s main focus is channeling money and effort into media formats and devices. To position themselves appropriately in the post-pandemic era, service providers are stepping up efforts to formulate strategic initiatives and identify sources of demand.
What is shaping the future of the advertising industry?
Economic recovery : Industry benefits from manufacturing and service activities which, in turn, depend on economic health. Notably, a steady economic recovery is evident from the GDP figure for the fourth quarter of 2021, which according to the “third” estimate released by the Bureau of Economic Analysis, grew at an annual rate of 6.9% compared to the up 2.3% in the third quarter. The March services PMI, as measured by the Institute for Supply Management, came in at 58.3%, 1.8% higher than the February reading, marking the 22nd consecutive month of expansion in economic activity. Although economic activity in the manufacturing sector fell 1.5% from February to March, with the services PMI reaching 57.1%, the reading of over 50% marked the 22n/a consecutive month of expansion.
Relaunch of the request: The industry is mature, with demand for services remaining strong over time. Revenues, revenues and cash flow should gradually reach healthy levels before the pandemic, helping most players in the sector to pay stable dividends.
Digital marketing brings together Steam: Amid the pandemic, digital media consumption has skyrocketed as consumers spend more time on various media platforms and video streaming services. Thus, agencies offering digital marketing services have everything to gain, as these companies are better positioned to deal with this rapid change in customer preferences. According to Magna’s most recent forecast, advertising dollars in the United States will reach $320 billion, crossing the $300 billion mark for the first time.
Zacks’ Industry Rankings Indicate Bright Prospects
The Zacks Advertising and Marketing industry, housed within the broader Zacks Business Services sector, currently carries a Zacks industry ranking of #46. This ranking places it in the top 18% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is essentially the average of the Zacks ranking of all member stocks, indicates strong near-term growth prospects. Our research shows that the top 50% of industries ranked by Zacks outperform the bottom 50% by a factor of more than 2 to 1.
Before outlining some stocks you might consider for your portfolio, let’s take a look at recent stock market performance and the current valuation of the sector:
Industry price performance
Over the past year, Zacks’ advertising and marketing industry has lagged the S&P 500 composite, but outperformed the broader sector.
The industry rose 1.9% against the 18.7% decline in the S&P 500 composite index and the 51.2% decline in the broader sector.
Year-over-year price performance
Current industry assessment
Based on the 12-month forward price-to-earnings (P/E) ratio, which is commonly used to value advertising and marketing stocks, the industry is currently trading at 9.78 versus 18.41 for the S&P 500 and 25.58 for the sector.
Over the past five years, the industry has traded as low as 16.25X, as low as 9.08X and at the midpoint of 12.11X, as seen in the charts below.
12-month forward price-to-earnings ratio (P/E)
3 advertising actions to consider
We present three stocks well positioned for near-term growth:
Interpublic: With a flexible business model in place, this global advertising and marketing services provider has focused on its strategic priorities, investing quickly in talent and offerings, and managing operating costs amid the pandemic.
The Zacks consensus estimate for current-year EPS has been revised up 0.7% over the past 60 days. The stock has appreciated 17.6% over the past year. Interpublic currently carries Zacks Rank #2 (Buy).
Pricing and Consensus: IPG
Hart Hanks: This company provides various multi-channel marketing services in the United States and internationally. It is currently benefiting from investments in technology infrastructure and new contracts. He expects significant margin improvement going forward due to the consolidation of fulfillment operations in the KC facility.
Harte Hanks holds a Zacks No. 1 rank, with the Zacks consensus estimate for current-year EPS remaining unchanged at 1.34% over the past 30 days. Shares of the company are up 59.3% over the past year.
Pricing and Consensus: HHS
WPP: The Company is a communications, commerce and technology services provider. His serving performances have been robust during the pandemic. The company sees strong growth opportunities in communication areas such as digital media, e-commerce media and programmatic.
WPP currently carries a Zacks rank #3 (Hold). The Zacks consensus estimate for current-year EPS was unchanged at $5.86 over the past 30 days. Shares of the company have risen 33.6% over the past year.
Pricing and Consensus: WPP