In this article, we will look at the 10 Worst Advertising Stocks To Buy According to Short Sellers. Let’s look at where Interpublic Group of Companies, Inc. (IPG) stands against other worst advertising stocks.
Overview of the Global Advertising Sector
Advertising agencies have profited from per capita disposable income, increasing consumer spending, and corporate profit in the past few years. Although advertising expenditure fell after the outbreak of the COVID-19 pandemic, industry revenue in 2020 rose with companies demanding creative services for their pandemic-focused promotional campaigns. Corporate profit bounced back after 2020, allowing agencies to monetize the exponential release of pent-up demand as companies and businesses scrambled to target a specific customer base: one with increasing disposable income.
According to estimates from IBISWorld, industry-wide revenue in the advertising sector has been growing at a compound annual growth rate of 2.7% over the past five years. It is expected to reach $70.1 billion by 2024, increasing by 1.9%. Profit is also anticipated to grow by 6.6%. According to a report by Mordor Intelligence, the online advertising market is valued at $257.97 billion as of 2024. It is expected to increase to $431.76 billion by 2029, growing at a compound annual growth rate of 10.97% in the forecast period.
North America is the largest market in the sector and is also the fastest-growing in the world. The increasing use of digital devices and social media has caused an exponential boom in the online advertisement sector, becoming a critical component of marketing strategies for companies across the globe.
Spending in the Advertising Sector
Spending in the advertising industry, which determines the fate of publishers, is also determined by the state of the economy, consumer confidence, and advertisers’ outlook. Advertising giants have talked during earnings calls that while the advertising market is not at its best right now, it does appear to be recovering.
This recovery is taking place in areas such as food and technology, which joins strong performance in healthcare, pharmaceuticals, and beauty care. Companies that are active in programmatic advertising (data-driven user targeting through ads), have also seen programmatic revenues surge while broader advertising revenue decline.
US Elections and the Advertising Industry
US political campaigns take over the advertising landscape during an election season, setting the stage for a number of challenges for non-political advertisers. As such challenges only seem to grow with each election cycle, 2024 is no exception. Hotly contested Senate battles and a divisive Presidential race landscape are some of the factors driving unprecedented political ad spend. Estimates show that this year’s political ad spending is expected to stand between $10.2 billion and $12 billion. This translates to a 13%-30% increase from the 2019-2020 election cycle ad spend.
This creates a pressing need for advertising and marketing leaders from outside the political landscape to find creative ways to navigate the politics-saturated market and chalk out ways to make the most of their spending in a period of localized inventory scarcity and high demand. Advancements in generative AI are also likely to create a landscape of misinformation and disinformation, especially on social media. This brings an additional responsibility to advertisers to safeguard their brands and clients from the potential pitfalls of such AI-generated misinformation and harmful political content.
According to a report by Insider Intelligence, TV media is again expected to take the largest chunk of America’s political ad spending. It is anticipated to rise 7.9%, accounting for 71.9% of all spending. In addition, advertising costs on TV and other mediums are also expected to rise with the presidential campaign reaching its full swing. These trends will likely affect all kinds of advertisers, as TV, radio, and out-of-home advertising is anticipated to be rife with election advertising. This would make getting non-political messages across considerably harder, as there is expected to be considerable noise in the market between August and November.
Our Methodology
To list the 10 Worst Advertising Stocks to Buy According to Short Sellers, we used a Finviz screener to filter out stocks catering to the advertising industry. Next, we narrowed our list of stocks by selecting the ones having high short interest. Finally, the stocks were ranked in ascending order of their short interest. We also mentioned the hedge fund sentiment for each stock.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
10 Worst Advertising Stocks To Buy According to Short Sellers
Interpublic Group of Companies, Inc. (NYSE:IPG)
Short Interest: 6.69%
Number of Hedge Fund Holders: 30
The Interpublic Group of Companies (NYSE:IPG) is a global marketing services and advertising company specializing in data, insights, media, creative and production, healthcare marketing and communications, and digital commerce. It operates through three segments: Integrated Advertising & Creativity Led Solutions (IA&C), Media, Data & Engagement Solutions (MD&E), and Specialized Communications & Experiential Solutions (SC&E).
The MD&E segment provides digital services and products, global media and communications services, advertising and marketing technology, data management and analytics, e-commerce services, strategic consulting, and digital brand experience. This segment runs Acxiom and IPG Mediabrands. The IA&C segment, in contrast, provides advertising, strategic consulting, and corporate and brand identity services. The SC&E segment covers global public relations and other specialized communications services, sports, entertainment marketing, events, and strategic consulting.
The company is backed by solid financials and reported strong second-quarter results. Organic growth in Q2 fiscal 2024 before billable expenses rose to 1.7%, bringing total organic growth in the first half of 2024 to 1.5%. Central America, Latin America, and the UK experienced significant growth, followed by increased growth in markets in the US and other parts of the world. In addition, each of the company’s three operating systems grew organically as compared to the same period in 2023.
IPG Mediabrands and IPG Health are some of the company’s key drivers of growth. In addition, Golin, Acxiom, and Deutsch LA also saw solid quarterly growth. The company expects to continue its growth trajectory, anticipating the most consistent and strongest business growth areas to be tech and data-driven media offerings, PR and experiential marketing capabilities, and specialist healthcare marketing expertise. Growth in two of its largest and most successful businesses, IPG Mediabrands and IPG Health, is driven by the specialized high-value services the company provides to marketers, earning it a competitive edge. It reaches audiences more precisely and relies on more technical skill sets to lead to outcomes.
The company expects Generative AI to further enhance its broad range of offerings. It is collaborating with Amazon, Adobe, Getty Images, Blackbird.AI, Microsoft, Google, and other significant industry players to gain enterprise access to large language models and advanced AI tools. These resources are being increasingly implemented in all sectors of the company’s business segments, including creative ideation in production, experiential communications practices, insight generation, and advanced media and precision marketing capabilities.
Overall, IPG ranks 2nd among the worst advertising stocks to buy according to short sellers. While we acknowledge the potential of IPG as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than IPG but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.