Picking stocks in the European media sector is proving difficult, with the industry underperforming the Euro Stoxx 600 so far this year.
UBS analysts highlight two key pressures: a rotation away from companies with strong dollar earnings and softer macroeconomic data in the US weighing on advertising-dependent businesses.
Ad spending is slowing, particularly among major US advertisers, which has hit media groups reliant on cyclical revenues. WPP PLC (LSE:WPP) is down 18%, Publicis has dropped 10%, and Omnicom has fallen 5% since February.
In this environment, UBS prefers defensive stocks with clear growth drivers, naming RELX PLC (LSE:REL) and Universal Music Group (EURONEXT:UMG) as its top picks.
Publisher RELX benefits from steady growth in its legal and scientific divisions, while UMG is set to gain from rising paid streaming volumes and new pricing tiers on platforms like Spotify. Both stocks remain expensive compared with historical averages, but UBS sees around 20% upside from current levels.
Among the more cyclical names, Publicis and Informa stand out as high-quality companies trading at attractive valuations, with price-to-earnings ratios of 11 and 13 respectively.
However, UBS warns that if macroeconomic conditions deteriorate further, these stocks could still come under pressure.
It has cut price targets for Publicis, Informa, Wolters Kluwer, and Omnicom, reflecting a more cautious outlook. Meanwhile, WPP is the only stock on the list rated a ‘Sell,’ with concerns over potential client losses and weak first-quarter performance.