If You Believe Bernstein's Estimates, It's Time to Buy Ad Related Stocks

by: TMT Analyst

I was taking a look at the Bernstein advertising estimates that called for a -0.3% decline in global advertising in 2009, but for a rebound in growth of 5.5% in 2010 and 5.9% in 2011 and thought that, clearly, Bernstein is thinking the path to growth is imminent. If that is the case, then now would be the opportune time to buy advertising stocks if your investment horizon is three to five years. However, I am not entirely sure if I am in total agreement with that statement yet because economic indicators have not pointed to clear signs of an economic rebound.

Those ad estimates by Bernstein could be wishful thinking on the part of the analysts who put those estimates together, hopeful that the economy rebounds. It is, however, supported by the firm, whose economists are estimating a 4% growth in worldwide GDP in 2010 and a further acceleration of 7% in 2011, from an 8% decline in 2009.

Looking further at their numbers, they expect online advertising to drive 26% of the advertising growth in 2010 and 28% in 2011. I think they are being conservative and my own estimates point to online contribution north of 40%. I do not have the other ad bucket estimates so I am not sure where the other approximately 70% of the advertising growth will come from, however, I would think outdoor advertising and cable would command the highest share, with radio advertising continuing to show negative growth.

Interestingly, paid search is projected to drive 10% of the growth in 2010 and 8.7% in 2011, and display (and Rich Media) driving 5.2% of the growth in 2010 and 5.7% in 2011. The balance of online advertising growth is due to new formats like IP Video and mobile advertising.

So what stocks should you buy if you believe Bernstein’s estimates? Clearly stocks like Google (NASDAQ:GOOG) and Yahoo (NASDAQ:YHOO) since they are levered to online advertising which is accounting for a significant part of the expected rebound. The ad agencies like WPP (NASDAQ:WPPGY), Omnicom (NYSE:OMC), and Interpublic (NYSE:IPG) and the online ad networks like ValueClick (VCLK) would make sense as well. The outdoor stocks such as Clear Channel Outdoor (NYSE:CCO) and Lamar Advertising (NASDAQ:LAMR) are good bets. Those two stocks have surprisingly retreated more than I expected.