Adam Johnson, former anchor at Bloomberg Television, now provides the Bullseye Brief — an advisory service, which follows a portfolio of 35-50 dynamic US growth stocks. (Editor's note: Adam will also share his 3 top biotech ideas at the MoneyShow Canada Virtual Expo; register for free here.)
Every pick in our model portfolio shares three defining attributes: great story, compelling data, newsy catalyst. Our latest addition is Omnicom Group, Inc. (OMC), the world largest advertising agency by revenue.
Omnicom looks like a straightforward value stock at first blush, a market leader trading at considerable discount to historic valuation. Go deeper and you realize it’s a data-driven growth platform, leveraging significant analytics to help customers glean insights and drive sales.
Curiously, the stock gets little credit for anything at the moment. Shares trade at multi-year lows, but that’s what creates opportunity for us. I think sooner than expected economic rebound could drive considerable multiple expansion in coming months, potentially as soon as 10/29 with Q3 results and Q4 guidance.
Omnicom is a very cheap stock. Shares trade for about 9.5 times 2021 estimates, compared to an average of 15.5x over the past ten years. In addition, consensus earnings estimates hover 12% below last year’s actual results, indicating that sell-side analysts still think full recovery is more than 12 months away.
Omnicom’s business is far more resilient than Wall Street analysts would have us believe. The company is quite profitable this year. As businesses re-open, Omnicom’s expertise in customer relationship management (CRM) will help clients mine data and return to profitability more quickly.
I like owning OMC around $50, which is near the March low AND 70% below the pre-Covid high. While I recognize that cheap stocks can always get cheaper, 9.5 times earnings is pretty darn cheap. Additionally, $50 has proven a reliable area of support for much of this year.
My target of $83 derives from multiplying next year’s consensus earnings of $5.38 by OMC’s 10-year average P/E ratio of 15.5. This is actually quite conservative. The stock reached an all-time high of $90 in 2016.
