It appears investors feel the ad sector stocks have been punished enough in recent weeks.
WPP posted relatively week third-quarter results earlier today and downgraded its guidance for organic growth to “broadly flat.”
Investors, however, reacted by driving the major ad sector stocks higher in mid-morning trading. WPP ADRs on the NASDAQ exchange were up around 3%, and Publicis shares on the Paris Exchange rose about 1.5%. Interpublic and Omnicom were up slightly on the New York Stock Exchange.
By contrast, earlier in the month, ad sector stocks fell by as much as 5% on separate days, when IPG and Publicis reported weak results.
While shares rose today in the morning trading session, all four of the major holding company stocks are still trading at or near their yearly lows.
In an investor note following WPP’s weak third-quarter posting, Pivotal research analyst Brian Wieser noted that declines in the holding company’s stock price in recent weeks “has brought it down to levels that represent a compelling price point, given our relatively favorable long-term view on the sector.”
Wieser added he was upgrading WPP from a “Hold” to a “Buy.”
Wieser issued the upgrade despite a “negative narrative toward agencies in general and WPP in particular [that] is likely to continue for some time.”
He noted some of the sector’s big challenges, “including slow growth for core clients, the application of zero-based budgeting tactics at many of them, the ongoing impact on fees from enhanced scrutiny of contracts, like-for-like fee compression, threats of wider-scale in-housing of programmatic buying and creative production, slowing shifts of spending into digital media among the clients agencies serve and competitive threats from consulting and IT services firms.”
That said, the analyst’s long-term view on holding companies remains positive.
“They continue to contain vast networks of entrepreneurial individuals, most of whom are capable of continuously finding new ways to generate revenue. They continue to offer unique value by offering best practices, scale where it matters (as with media) and best-in-class expertise on a wide range of marketing disciplines.”
Thus, he added: “We feel confident that industry-level growth will eventually resume -- if not next year, then certainly in 2019, albeit at more modest levels than we've experienced” from 2011 to 2016.
Well, modest growth is certainly better than no growth -- which is what WPP and possibly other holding companies, appear to be facing this year.