Ticker: WPP, Buy below $90.

WPP is a multinational advertising and public relations company based out of London.

Why I Would Buy

  1. Cheap – WPP is currently selling for < 10x earnings.
  2. Dividend – Pays close to 5%, while maintaining a payout ratio hovering around 40%.
  3. Return on Equity – RoE has been above 10% for past decade, and above 15% for past 3 years.
  4. 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.
  5. Globally Diversifiedhas significant revenue streams emanating from every major and developing economy around the world.

What Could Go Wrong

  1. 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.
  2. Debt – Several large recent acquisitions were financed via debt, if revenues taper due to any reason; it could snowball into a major problem.
  3. 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.

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