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Stock Strategist Industry Reports

Wait for Pullback Before Investing in Ad Holding Firms

Ad holding companies are fairly valued, but competitive positions remain intact.

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The advertising market is hot after a two-year upswing following the recession, and the three ad holding companies in our coverage universe all reported strong high-single-digit top-line growth in the first quarter. We believe it's too late for investors to play this recovery, as  Omnicom (OMC),  Interpublic (IPG), and  WPP Group (WPPGY) have been on a huge run over the past two years. However, investors should keep these stocks on their radar screen as we think they have sustainable competitive advantages.

While ad growth can fluctuate with the swings in the economy and is therefore difficult to predict, we have a high degree of confidence in our narrow economic moat rating for the global advertising holding companies. We believe they will remain a vital partner for large global corporations over the next decade. Omnicom, Interpublic, and WPP Group each own hundreds of individual agencies around the world focused on specific verticals such as ad creation, brand strategy, media planning, and public relations. These three firms, along with Publicis, garner about 60%-65% of global spending for advertising and marketing services.

Michael Corty does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.