Hedge fund activity is an essential indicator for individual investors to follow. On an aggregate level, the smart money’s sentiment can be used as a screening technique to determine which stocks are the best investments in a particular industry. At Insider Monkey, our empirical research shows that individuals who mimic hedge funds can beat the market by double-digits annually (see the details of our market-beating strategy here).
S&P calls 2013 a “transition year” for the advertising industry, with a secular shift toward digital billboards offset by a fewer top-dollar opportunities like the Olympics, for example. Still, over the long term, advertising companies can be an integral part of any investor’s portfolio. By using our database of 13F filings with the SEC, we can take a look at just how hedge funds are playing this space.
Of the 400+ hedge funds we track, Interpublic Group of Companies, Inc. (NYSE:IPG) is the most popular advertising stock, held by 27 money managers at the end of the last 13F filing period. Interpublic Group has generated impressive rates of return across the board, and has grown its earnings by an average of 10.5% a year over the past half-decade. Growth is expected to slow a few ticks going forward to the high-single digits, but the company’s generally aggressive acquisitive efforts have most analysts bullish. Wall Street’s average price target on IPG represents an 8-9% upside from current levels, and a dividend yield close to 2% offers income-seeking investors comfort as well.
Shares of Lamar are generally overvalued, but this momentum-driven stock can see further gains if it outpaces the Street’s quarterly EPS estimates next month. Analysts are expecting Lamar to finish its fiscal fourth quarter with earnings of 10 cents a share, which would represent a 43% growth from last year. Worth noting is that Lamar did issue light EPS totals last quarter despite beating on revenues; we’ll be watching the company’s report closely.
Who’s the best of the rest?
In third place sits Omnicom Group Inc. (NYSE:OMC), another key player in the global advertising industry. The agencies under Omnicom’s banner include DDB and BBDO, among others, and the company’s more modest growth prospects have left it undervalued by investors. The sell-side predicts Omnicom to grow its earnings by 8-9% a year over the next half-decade, almost 3 percentage points higher than average growth since 2007. The stock trades at a mere 13.7 times forward earnings and is priced at a 26% discount to its industry’s average. Omnicom also offers a higher dividend yield (2.2%) than both Lamar and Interpublic.
The fourth most popular advertising stock among hedge funds is Focus Media Holding Limited (NASDAQ:FMCN). Focus Media has a greater focus on video ads than its aforementioned peers, and offers products in movie theatres, retailers, and other heavily frequented areas. As can probably be expected, this business has given Focus Media more stability in comparison to most players in this industry. It has beaten the Street’s earnings in the last five consecutive consecutive quarters, and revenue totals have been impressive as well. Of the 7 analysts who cover Focus Media, 6 have buy ratings on the stock, and the group’s price target indicates that a 30% upside is expected from current levels. It’s easy to see why this stock is a hedge fund favorite.
Last but certainly not least we have National CineMedia, Inc. (NASDAQ:NCMI), held by 13 of the hedgies we track. National CineMedia focuses on advertising within movie theatres, and is actually a joint venture between Regal, AMC and Cinemark. National CineMedia has generated relatively unimpressive earnings recently, missing the Street’s Q3 estimates by 5.5%.
A reliance on one particular marketplace can affect results, though, and in the long run, the sell-side expects EPS growth to come around 7-8% over the next five years—nearly double that of its historical average. A sky-high dividend yield near 6% is a nice bonus for a stock that has returned 12.3% over the past year. One of the most bullish hedge fund managers in this stock is Jim Simons’ Renaissance Technologies (see Jim Simons’ favorite stock picks).
Disclosure: I have no positions in any of the stocks mentioned above
