Media Madness - marketing industry investments - Brief Article

Kiplinger's Personal Finance Magazine, Feb, 2000 by Manuel Schiffres

STOCKS | An ADVERTISING blitz should give a boost to media and ad-agency stocks.

When Invesco fund analysts meet with corporate officials, they're required to ask about trends in advertising spending. Recently, they have found that most businesses are coping with intense competition by boosting ad expenditures, says Mark Greenberg, manager of Invesco Leisure fund. "Whether it's Kellogg's or AT&T or L'Oreal cosmetics, everyone is increasing their marketing spending," he says. "You can have a good product, but if you don't have good marketing and a good brand name, you're toast."

This is music to the ears of investors in media stocks. Ad agency McCann-Erickson Worldwide estimates that U.S. ad spending will climb a hefty 8.3% in 2000, to $233 billion. Long term, PaineWebber says, the ad business will become less sensitive to the ups and downs of the U.S. economy as deregulation of telecommunications, financial services, health care and utilities promotes sharper competition for consumers' dollars.

The big jump in expenditures in 2000 is fueled in part by two quadrennial events: the Summer Olympics and the presidential election. Of more-enduring significance is a surge in spending by Internet companies, both online and in print, radio and TV. Indeed, McCann-Erickson expects advertising on the Web to soar 75% this year, to $3.2 billion. But increasingly, says Thomas Galvin, chief strategist at Donaldson, Lufkin & Jenrette, Internet companies are running their ads in traditional outlets. The explosion in new Internet stocks, he explains, is forcing the companies into a Darwinian struggle for survival. "Because many Internet stocks are valued on revenues, many companies will have to spend aggressively to keep revenues flowing in the door," Galvin wrote recently. "The marketing blitz to catch eyeballs should prove a huge boon to the shares of advertisers, broadcasters and newspaper companies."

Many traditional print companies also have exposure to television and the Internet. PaineWebber analyst Leland Westerfield gives his highest "buy" rating to McGraw-Hill (symbol MHP, New York Stock Exchange, recent price $61), owner of Business Week magazine and Standard & Poor's, among other things; the New York Times Co. (NYT, NYSE, $46), which, in addition to its flagship, owns the Boston Globe and TV and radio stations; and the Tribune Co. (TRB, NYSE, $56), which owns the Chicago Tribune, superstation WGN-TV and the Chicago Cubs.

Invesco's Greenberg says his favorites are the ad agencies themselves. They obviously benefit directly from additional ad spending. They benefit, too, from the desire of multinational companies to consolidate most, if not all, of their advertising around the globe through a single agency, says Greenberg. "If you're Procter & Gamble or Coca-Cola or AOL or Amazon.com, you're probably going to have similar messages in most of your markets," he says. His favorites are Omnicom Group (OMC, NYSE, $99), which owns BBDO Worldwide, DDB Worldwide and TBWA Worldwide, and British-based WPP Group (WPPGY, Nasdaq, $74), parent of J. Walter Thompson and Ogilvy & Mather.

Radio companies are also high on the list of ad-boom beneficiaries. Industry consolidation is allowing operators to boost prices for radio time, notes DLJ's Galvin. His firm's top picks are Clear Channel Communications (CCU, NYSE, $88), Infinity Broadcasting (INF, NYSE, $35) and Emmis Communications (EMMS, Nasdaq, $87).