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An uncertain economic outlook has created an opportunity to buy quality value stocks. I believe some are great opportunities that could bounce back well in the long term.
One FTSE 100 Index The giant I want to take a closer look at is PPP-Windows (LSE: WPP) Should you buy or avoid the stock?
Let's dive deeper to understand the risks, upsides, and future prospects to help me make an informed decision.
Keeping the world connected
WPP is one of the largest communications agencies of its kind in the world. It specializes in advertising, public relations and communications. With a long and historic track record, as well as a broad presence, it is difficult to ignore it in its respective sector.
The stock has been hit by the recent turmoil, but I think it has come through unscathed. Over a 12-month period, it is down just 4% from 761p at this time last year to current levels of 724p.
To buy or not to buy?
I'll start with the bearish scenario, as I think it's obvious what has happened recently. Higher interest rates, runaway inflation and geopolitical tensions have been a kind of cocktail of disasters for many economies and businesses. This usually leads to a cut in spending, especially when it comes to advertising and communications.
One of WPP's biggest moneymakers, the US technology market, has certainly been affected by these problems. In turn, WPP's performance and share price have suffered. In addition, weak economic growth in China (another giant market for WPP) has not helped either. It is difficult to predict when the situation might change, but I will keep an eye on the situation.
A lesser concern for me is the threat of marketing and advertising activities moving away from outsourced companies like WPP and back in-house. This could also hurt profits and returns.
Moving to the other side of the coin, WPP’s existing client base as well as its fully integrated offering are definitely a draw for me. To put it into context, it works with 300 of the Fortune Global 500 companies in some capacity, so it is obviously trusted by some of the biggest and best companies on the planet. On top of this, its efforts to capture market share in emerging territories could also help boost future earnings and returns.
As for a comprehensive offering, this includes brand consulting, e-commerce, communications and more, making WPP an attractive one-stop solution.
The fundamentals also look good to me. The stock appears to have a good price-to-earnings ratio with a forward P/E ratio of just under eight.
Plus, a 5.5% dividend yield sweetens the investment. However, I understand that dividends are never guaranteed.
My verdict
I believe that the advantages outweigh the disadvantages. As a long-term investor, I am willing to put aside short-term problems and look to the brighter horizons ahead.
I find it hard to ignore WPP's offering, experience and position in the industry. When the economic turbulence clears, I expect the stock to rise and the returns to continue to flow.
I would be willing to buy some WPP shares next time I have funds to invest.
