In this article, we will look at the 10 Worst Advertising Stocks To Buy According to Short Sellers. Let’s look at where Clear Channel Outdoor Holdings, Inc. (CCO) 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
Clear Channel Outdoor Holdings, Inc. (NYSE:CCO)
Short Interest: 6.47%
Number of Hedge Fund Holders: 32
Clear Channel Outdoor Holdings (NYSE:CCO) is an out-of-home advertising company with segments across America, Europe-North, and Airports. It specializes in providing personalized advertising solutions through its elaborate portfolio of urban street furniture, roadside billboards, airport advertising displays, and other similar displays. Its America segment operates in the United States, excluding its airports. The Airports segment offers advertising options around and within the United States, including the Caribbean airports. In contrast, the Europe-North segment covers operations in the Nordics, the United Kingdom, and several other countries throughout central and northern Europe.
The company also has businesses in Latin America, including operations in Peru, Chile, Brazil, and Mexico. Clear Channel Outdoor Holdings (NYSE:CCO) generally operates by outsourcing the manufacturing and design of advertising structures to third parties. The company has a strong profitability mechanism. It delivered a consolidated revenue of $559 million in Q2 fiscal 2024, with a 5.2% – 5.4% increase, excluding foreign exchange rate movements. It also experienced growth in its America, Airport, and Europe-North segments. The company’s performance highlights strong demand from advertisers across most of its markets, with the Airports and Europe-North segments exhibiting exceptional strength.
Clear Channel Outdoor Holdings’ (NYSE:CCO) solid execution throughout a variety of its ongoing initiatives gives it a competitive market edge, expanding its revenue base. Although its Q2 results came through at the low end of guidance, the shift appears temporary due to factors such as softness in the national marketplace, especially in the media entertainment and medical servcies verticals. To ensure positive growth in the coming quarters, the company is improving its business trends to remain on track with its full-year guidance.
Such efforts are leading advertisers and investors alike to divert their attention to the company. Its digital billboard platform is another attraction, which now reaches more than 70% of US adults in its served market every month. In addition, the company’s data and analytics capabilities are allowing it to effectively calculate advertisers’ campaigns and target specific audiences.
Apart from growing revenue generation in its programmatic and digital initiatives, the company also attracts business through its enhanced sales team, website, and direct outreach. 32 hedge funds hold stakes in Clear Channel Outdoor Holdings (NYSE:CCO) as of Q2 2024, with Legion Partners Asset Management holding the highest stakes worth $36.5 million.
Overall, CCO ranks 3rd among the worst advertising stocks to buy according to short sellers. While we acknowledge the potential of advertising companies, 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 CCO 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.