Art & Commerce: At the Closing Bell

1999 was a good year for agency stock investors
As we go to press, there are a few trading days left in the year, and anything can happen. But by the time of my next deadline, 1999›s stock-price story will be old news. So let›s assume things will conclude on Dec. 31 as they would on the 27th, noting that it would take a major development to spoil what was an outstanding year for most ad-agency stock investors. All but two of the stocks beat the Dow Jones Industrial Average, up 24 percent in 1999, and these were the only stocks to have lost ground during the year.
Our review is limited to the more seasoned stocks; those that have been trading for all of 1999. This filters out the dot.coms, which went public during the year. It is clear, however, that some of the Internet ˜pixie dust” that has helped levitate many of the dot.coms has blown over onto last year›s star performer: TMP Worldwide. The company derives slightly less than 20 percent of its revenues from Internet-related operations, but that share is growing. The rest comes from Yellow Pages and recruitment advertising, areas generally overlooked by Wall Street. The stock more than tripled this year.
At the other end of the price-performance spectrum, and one of only two agency-related equities to end the year worse than it began, is Snyder Communications. The firm spun off its healthcare operations, creating an entity called Ventiv Health. Snyder also issued a new tracking stock in its interactive business. None of these moves prevented investors from losing money in 1999.
WPP shares have continued their winning ways through 1999, turning in the industry›s second-best performance. The firm›s story to investors has been: ˜We can get our margins and profit levels up to those of the big guys,” i.e., Omnicom and Interpublic. With each step up along the way, investors have responded with renewed enthusiasm. Management is now focusing on other aspects of its business, such as the above-average growth potential of its nonadvertising operations, especially in research.
Saatchi & Saatchi and Cordiant Communications, completing their second years as de-merged separate entities, have each seen their share price more than double. Investors continue to view them as relative bargains in terms of their price-earnings multiple compared to other stocks in the group. As the companies› financial results have improved, measured in terms of earning per share, their stocks received a double benefit, propelled by the growth in earnings as well as a widening of the multiple.
Y&R is new to the group, completing its first full year as a public company. Two things seem to be behind the stock›s strength in 1999. Many investors buy into the idea that Y&R, like WPP and Cordiant, can boost its margins toward the level of the best-performing companies in the industry. The fact that Y&R still has some distance to travel indicates, to these investors, how much growth potential remains in the stock. Other investors believe that a one-network company, such as Y&R, will always be at a disadvantage to the multi-agency holding companies like Omnicom and Interpublic. Rather than shun the stock for that reason, these investors anticipate some sort of acquisition in which Y&R might fetch a premium.