Ticker: WPP, Buy below $90.
WPP is a multinational advertising and public relations company based out of London.
Why I Would Buy
- Cheap – WPP is currently selling for < 10x earnings.
- Dividend – Pays close to 5%, while maintaining a payout ratio hovering around 40%.
- Return on Equity – RoE has been above 10% for past decade, and above 15% for past 3 years.
- Beaten Down – Beaten down due to uncertainties surrounding the departure of the founder-CEO, and also due to several major accounts coming up for renewal this year.
- Globally Diversified – has significant revenue streams emanating from every major and developing economy around the world.
What Could Go Wrong
- Account Renewals – Several large global accounts are up for renewal this year, just lost one of these (HSBC). If several others are lost, will hurt revenues grievously.
- Debt – Several large recent acquisitions were financed via debt, if revenues taper due to any reason; it could snowball into a major problem.
- High Beta – Advertising and media spend are strongly correlated to global economy, and is first spending to be cut in a downturn.
Disclosure: I am long WPP, please read additional disclosures here before taking any action based on this post.