• Financial & Investment Management Group
  • Tuesday, January 06, 2009

Extra!Extra!!Read All About It!!!

by Suzanne Stepan
Posted March 10, 2008
FIM Group

Current Observations

March Edition
PDF Version

Through most of the 20th Century, newspapers were the primary source of information for many individuals. Since the digital revolution in the 1990's the Internet has increasingly dominated the market as the key resource for news and information and has posed intense competition for tangible printed news. Where does this leave the publication that is printed daily or weekly and includes local and international news stories, advertisements, opinions, cartoons, sports news and television listings?

Many analysts have predicted a grim year for newspapers. Classifieds are expected to be the main culprit. Given that real estate, help wanted and auto sections are predominantly susceptible to broad economic booms or busts, earnings forecasts on newspapers have been cut significantly in light of the current economic landscape. For the last three years the cost of newsprint has also skyrocketed over 40 percent. Higher costs for fiber, energy, transportation and labor have all contributed to inflationary expectations. This is a sticky topic, as newspapers adapt by decreasing sizes and converting to lighter paper stock. In 2007, the Wall Street Journal lopped off three inches from the width of each page saving over $18 million annually. The landscape sounds dismal for newspaper companies and the market has punished these stocks to levels below their fair value estimates, offering opportunity for FIM Group clients. Some of these stocks include The New York Times Co. (NYT) which publishes "The New York Times," "The Boston Globe," and the "International Herald Tribune", Gannett Co. (GCI) which is well-known for "USA TODAY" and "USA WEEKEND" and the Washington Post (WPO) which is legendary for "The Washington Post" and "Newsweek" publications. These deeply discounted stocks offer a large margin of safety because the values of their underlying business are now worth more than their current market value, resulting in a substantial price discrepancy between the two. These solid companies are now selling at prices that provide a greater return potential as well as a greater degree of protection over the long term. In an age of fragmentation and information clutter, newspapers still amass large audiences helping to produce substantial profit margins. Financial stability is created from the large cash flows generated from the significant number of individuals who continue to read a daily newspaper along with advertisers attempting to reach consumers.

As the market worries that these businesses will fade away with the increasing demand for Internet-based "new media," traditional newspaper publishers are transforming into broadly-diversified companies. Using the significant cash from the more than 50 million newspapers sold each day, these companies now have operations in television, radio and Internet-related media. The cash has also been given back to shareholders in the form of compelling dividends and used to buy existing shares outstanding.

The newspaper companies such as NYT, GCI and WPO offer major lines of business, solid brands and strong management teams. Reality has shown us that if consumers have a need for a product, the product does not die. For example, dishwashers have not replaced the need for dishtowels, e-cards have not replaced the joy of receiving a tangible card in the mail, digital photography has not eliminated photo albums, and the Internet has definitely not replaced the desire for many individuals to read a daily printed newspaper. Yet, many of these companies are being priced as though they are going out of business.

Extra! Extra!! Read all about it!!! Of the thousands of newspapers published in the United States each day, with current headlines, editorials, human interest stories, society news, sports reporting, advice columns, obituaries and business reports, the written word in the form of newsprint is far from dead!

 
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