Filed Under: ,
Tickers in this Article: IPG, OMC, HHS, LAMR, VCLK, DAKT
It's not always easy to find obscure trends and off-the-beaten-path picks. Still, these picks are where many investors make an impressive amount of money in the stock. In particular, advertising stocks show a lot of promise as one of the market's next potential hot picks!

IN PICTURES: 20 Tools For Building Up Your Portfolio

Reduce Time & Labor Required

We've all got a basic idea of what our ideal stock pick looks like. The challenge is in sifting through an enormous amount of information to find the right candidate. Here's an easier way to start, with the added benefit of finding current "movers."

Below is a small snippet of the stock activity for a few select picks in spreadsheet form.

Name
2-Week Pct Chg
1-Mon Pct Chg
2-Mon Pct Chg
3-Mon Pct Chg
6-Mon Pct Chg
%Chg: 52 wk
S&P 400 Mid Cap Advertising
0.54%
69.23%
116.22%
72.95%
12.56%
-51.91%
S&P 600 Small Cap Advertising
6.06%
38.7%
60.89%
38.62%
-36.1%
-55.05%
S&P 500 Advertising
9.81%
38.2%
37.48%
32.48%
9.57%
-33.31%
S&P 600 Small Cap 600 Index
2.44%
17.42%
26.92%
11.76%
-9.03%
-31.26%
S&P 400 Mid Cap 400 Index
1.99%
14.75%
24.85%
12.53%
-1.29%
-32.77%
S&P 500 Index
0.37%
9.39%
18.74%
5.68%
-9.9%
-37.01%
Keeping tabs on that many items is still a lot of trouble, but some things are worth the effort. The information collected is priceless. For instance, just a quick glance at the table shows:

  • Advertising took a big hit over the last year, and is likely to be undervalued.
  • The small and mid caps are outperforming the large caps.
  • The entire industry is starting to outperform the overall market.
That's three valuable pieces of information gleaned in about five seconds worth of study; the only concern so far is that these stocks might be overbought. However, that is a short-term problem solved with a healthy pullback (and a potential reason to keep your powder dry). But what about fundamentals? Oh, they're still important too. (Learn more in our Fundamental Analysis tutorial.)

Cross Reference Your Data
The short-term strength is encouraging, but these trends will never last if corporate performance doesn't support them. Observe the simple table below. Does the future for any of these stocks look better than the past? If so, which ones?

Company
Index
TTM Price/Earnings
Projected 12 Mos. Price/Earnings
Interpublic Group (NYSE:IPG)
S&P 500
13
14.2
Omnicom Group Inc. (NYSE:OMC)
S&P 500
10
11.7
Harte-Hanks Inc. (NYSE:HHS)
S&P 400
8
12.5
Lamar Advertising Co. (Nasdaq:LAMR)
S&P 400
154.4
-
ValueClick Inc. (Nasdaq:VCLK)
S&P 400
-
16.3
Daktronics Inc. (Nasdaq:DAKT)
S&P 600
11.9
16.4
This chart displays that most of these stocks are relatively cheaper (compared to earnings) now than analysts think they'll be twelve months from now. Said another way, these companies are expected to do worse over the next twelve months – in the midst of a likely recovery – than they did over the last twelve months in what we know was a nasty recession.

Bluntly, it seems as if the forecasts for the large caps have been updated, while the forecast for the smaller companies haven't been yet.

Also bear in mind that if these stocks are overbought at the same time analysts have underestimated them, the forward-looking price multiples will feel a little high right now. Therefore, between the fundamentals and the technicals, ValueClick's impending swing to a profit, and Daktronics deserve a closer look. Harte-Hanks should pique your curiosity, as well. (Find out how you can combine the best of both strategies to better understand the markets, see Blending Technical And Fundamental Analysis.)

What to Expect
The longevity of this relative out performance is uncertain. Admittedly, the trend could crumble tomorrow - or it could last for months. Generally speaking though, once these trends get going, they tend to last for a few weeks to a few months (the good ones, anyway).

However, even if only one out of five of these apparent trends gets long-term traction, and the other four fade, we're still ahead of the game.

The Bottom Line
Most investors perform a bottom-up approach by looking for high quality stocks, and then hope those stocks perform well. This top-down approach looks for stocks that are apt to perform well going forward, and then "drills down" to determine if more gains are justified by the fundamentals. It's an easy strategy to think about the next time you're in re-allocation mode. In the meantime, don't forget about advertising stocks.

comments powered by Disqus

Trading Center