On Newspaper Stocks
I admit I've been watching newspaper stocks with some interest; but, I am not yet convinced of anything. However, I can say to those who have not yet taken a good look at newspaper stocks that they ought to do so.
I have no greater insight into the future than those who are selling these stocks. But, I do know that at times like these, when a general consensus is reflected in the quotations of certain stocks, those few investors whose analysis is both correct and unpopular will be rewarded, if and only if, they have the courage to eschew the flock and act upon their own judgment.
While there are not as many stocks trading at astronomical evaluations as there were half a decade ago; there are not many cheap stocks either. This is not the sort of market you throw darts at. Newspaper stocks are a rare oasis of pessimism in a desert of optimism. Whether that pessimism is undue or not is a matter for you to decide.
If you’ve already considered this matter, please share your thoughts with us by commenting below. For those who have yet to delve into the matter, you’d best get started now. I can suggest five stocks of interest: Daily Journal Corporation, Gannett, Journal Register Company, Journal Communications, and The New York Times Company.
I’m not saying these are necessarily any more promising than the rest of the group. But, if you are looking for bargains, they are a good place to start.
Happy hunting.
Comments
News paper stocks...are you sure? I'd like to understand more of what you see in them.
In most cases, readership is stangnant or down...and most importantly...so are add sales...not including the plummiting calssified revenue...thnaks to craig. WSJ is reducing a column to save money and chop heads....NYT is chopping heads. The only news agencies that are hiring are the online ones...like Market watch and Bloomberg. Then look at the demand for NewsPrint...also way down.
Where ya coming from?
Posted by: Jonathan | December 28, 2005 02:55 PM
I agree with just about everything you’ve said. Newspapers will and should be cutting costs. For the reasons you mentioned, I’d expect local community papers to do best and big city papers to do worst (the one exception is the possibility of the NYT as a national brand). I’m not optimistic about the future of newspapers, but some of their valuations are now attractive. For instance:
New York Times Company
P/E: 12.5
P/S: 1.14
P/B: 2.53
The Times is well known so I’ll break down one of the lesser known companies I mentioned.
Journal Register Company
P/E: 10.7
P/S: 1.10
P/B: 2.78
5 year avg. return on capital: 17.6%
Look at the 10 year cash flows for JRC:
http://quicktake.morningstar.com/Stock/cashflow10.asp?Country=USA&Symbol=JRC&stocktab=finance
And the Cash Flow Ratios:
http://quicktake.morningstar.com/Stock/CashFlowRatios10.asp?Country=USA&Symbol=JRC&stocktab=keyratio
Notice free cash flow as a percent of sales and cap ex as a percent of sales. I fully expect JRC’s sales to decline in the future, but I don’t think it’s going to happen overnight. So, the real question is: is the free cash flow great enough even in the face of steadily eroding revenues? What's the intrinsic value of this company?
*****
Some leading newspapers are attractive because they own smaller community newspapers. For an example see the Dow Jones Co’s Ottaway Newspapers:
http://www.dowjones.com/Products_Services/OttawayNewspapers.htm
Have you been to Oneonta? I have, and I doubt there are much more effective outlets for advertising. If Dow Jones tried to migrate Barron’s and the Wall Street Journal to an online subscription business, cut costs, and kept the Ottaway Newspapers, it could conceivably remain quite profitable.
But, there is also the issue of incompetent managent and an overzealousness when it comes to the internet. Both the New York Times Company and the Dow Jones Company spent too much money trying to acquire existing online businesses instead of moving their existing brands online in a big way – though now they’re clearly doing that. Sometimes they spend money on pretty senseless stuff. The Discovery Times Channel? There had to be better uses for that money?
Generally, I’d avoid the bigger names in newspapers and try to stick to niches especially local community papers in wealthy, family oriented towns or monopoly daily papers in smallish towns/cities. In fact, if I could be part owner in any paper it’d be the Star Ledger (New Jersey’s dominant daily). But, it’s privately held. I don’t know the exact figures, but its generally agreed to be an extraordinarily profitable paper – (it has an extraordinarily small staff for its circulation).
Here you can see the Star Ledger is the only big newspaper whose circulation didn't drop:
http://www.breitbart.com/news/2005/11/07/D8DNNTVG1.html
New Jersey is a very wealthy state divided between two TV/radio markets (New York and Philadelphia) so the Star Ledger is the only high penetration media outlet in the state.
Of course, for other newspapers to look more like the Star Ledger they’d have to cut staff, reduce national and international coverage, and focus on dominating key local markets. As for the three big papers: The New York Times, The Wall Street Journal, and USA Today, they need to move to an online subscription model and over many years phase out the actual newsprint editions. They’d be viable national brands online.
So, to answer your question, that’s what I see. There’s the possibility for a few large, highly profitable online news outlets and many small, highly profitable monopolies (in print). I don’t think buying newspapers indiscriminately would be a good idea, but if you delve deeper into the five I mentioned I think you’ll find at least one good value.
Thanks for your feedback
I hope this helped
Posted by: Geoff Gannon | December 28, 2005 06:40 PM