Investopedia Advisor submits: The online revolution is kicking in to high gear, and with it big changes in the world of media and advertising. Rarely a big day goes by without news about newspapers, magazines, network TV and radio losing viewers to the internet.
For exposure to the online advertising bonanza, I’m not convinced the internet stocks are the best places to put your money. The trouble is that the dotcoms are commanding some very pricey valuations. Google now trades at a whopping 40 times 2006 earnings and 57 times free cash flow. Trading at 38 times earnings, Yahoo! is also priced for perfection. New growth created by online advertising is already priced into these stocks.
So, what should investors be buying? By my reckoning, winning stocks are likely to be advertising groups that make and manage advertisers’ spending. A stock to consider is London-based advertising agency WPP (WPPGY).
WPP is well positioned to be a channel for how advertising dollars are shifted onto the internet. Its strength in non-traditional advertising gives WPP an edge over rival Interpublic (NYSE:IPG) and puts it on par with number one rated ad group Omnicom (NYSE:OMC). This year, WPP was Google’s third-largest customer in terms of placing ads for its clients. With more and more companies looking for internet advertising to be integrated in their overall campaigns, online advertising could become even more profitable for WPP.
What’s more, with WPP you can a get a piece of internet advertising while avoiding the hefty prices of Google and Yahoo!. WPP is trading for just 15 times next year’s earnings. Wall Street analysts expect it to deliver earnings growth of 17%. That puts WPP on a startlingly low price-to-earnings/growth (NYSE:PEG) ratio of 0.9.
WPPGY 1-year chart:
By Ben McClure, Contributor - Investopedia Advisor
At the time of release Ben McClure did not own any shares in any of the companies mentioned in this article.