In this article, we will look at the 10 Worst Advertising Stocks To Buy According to Short Sellers. Let’s look at where Omnicom Group, Inc. (OMC) 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
Omnicom Group, Inc. (NYSE:OMC)
Short Interest: 5.93%
Number of Hedge Fund Holders: N/A
Omnicom Group (NYSE:OMC) is a global marketing and corporate communications company. Its specialty firms and branded networks offer services in various arenas, including advertising, prevision marketing, strategic media planning and buying, commerce and branding, customer relationship marketing (CRM), healthcare marketing, public relations, and other specialty communications services. These services span more than 70 countries and around 5,000 clients.
Omnicom Group (NYSE:OMC) specializes in digital and direct marketing and post-production services, database management, digital transformation consulting, custom publishing, crisis communications, package design, interactive and mobile marketing, promotional marketing, public affairs, social media marketing, retail media and e-commerce, search engine marketing, instore design, interactive and mobile marketing, investor relations, and a number of other services. It also operates Flywheel Digital as its digital commerce, offering services in media execution, e-commerce operations, and market intelligence.
The company is running on strong financials. It recorded a 5.2% organic growth rate for Q2 2024, with its US segment growing at a 6.3% rate across all disciplines, including Experiential and Advertising and media. Its first-half and Q2 2024 financial results maintained its full-year organic revenue growth target of between 4% and 5%, highlighting its continued profitability. Omnicom Group made substantial progress across several areas in Q2.
Omnicom Group (NYSE:OMC) expanded its end-to-end generative AI solution, launched a new production practice area, landed several prominent clients, and expanded its e-commerce offerings. It launched Omni 3.0, the next generation of AI-powered Omni, at Cannes last year. This year, the company is seeing tools and partnerships being activated through each of its business areas through this generative AI platform. These areas of growth range from creative to media, precision marketing, and production.
One example of these advancements is the launch of collective AI by TBWA, offering its clients an array of AI tools. Collective AI expedites and automates basic tasks, offers AI-driven insights to clients, and frees up time for teams to help brands manage their services, products, and experiences. It is powered by Omni’s first-mover generative AI partnership and includes custom applications using TBWA’s elaborate archives and LLMs.
Another prominent example is the launch of ArtBotAI, an intelligent content orchestration platform. ArtBotAI leverages models powered by Omni, assembling its clients’ digital assets to create and deliver personalized experiences. It enhances the value of its clients’ creative content, maximizing the performance and precision of their media investments. Such developments shed light on the profitability and efficiency of the company’s generative AI strategy, providing tools and capabilities to streamline processes and drive transformative outcomes for its clients.
The company has continued its strategic expansion strategies throughout the quarter, growing its market-leading e-commerce capabilities and retail media. At Cannes, it announced a collaboration with Amazon Ads, enabling its media teams to access Amazon’s shopping, browning, and streaming insights to directly tie CTV and linear investments to purchases made on Amazon. The stock trades at a forward P/E of 12.61 at a 6.57% discount to its sector.
Overall, OMC ranks 6th 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 OMC but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
Disclosure: None. This article is originally published at Insider Monkey.
