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This just in: Value investors value newspapers
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"While we are not putting a specific break-up or fair market value on the Company's assets at this time, based on what we observed of other shareholders invited to address the Board at its July meeting, we think that we are not alone in believing that the Company's fair value significantly exceeds its current share price."
Sherman told me two years go that he believes that the papers represent significant underappreciated value, and would make him a lot of money. They're down quite a bit since then, but Sherman is a very patient man. Knight-Ridder shares rose 6% in response to his filing on Tuesday.
One newspaper stock that contrarians may wish to consider is Tribune (TRB, news, msgs), which suffered an unbelievable setback recently in connection with its 1998 purchase of Times Mirror, the corporate parent of the Los Angeles Times. With that deal, it obtained a $1 billion tax liability that its lawyers wrongly believed could be settled with little financial impact. They were wrong, and the company -- which owns a large stake in the WB Network as well as the Chicago Cubs baseball team -- has seen its stock price fall to $30 from its 2004 high of $52.
Analysts are still decidedly negative on Tribune, which has also suffered through an embarrassing circulation scandal at Newsday, its property in suburban New York. But note that it does appear on the road to recovery via cost-cutting and circulation stabilization. Leland Westerfield, analyst at Harris Nesbit, said he sees the company edging back into respectability in 2006 via solid TV revenue growth and the influx of political advertising. We expect value and turnaround-investor attention to increase as the company proves it going forward, he wrote in a note to clients late last month. Westerfield is looking for 3% revenue growth and 9% cash flow growth in broadcasting, and 3% and 5%, respectively for the publishing group.
Its kind of sad that those kinds of very modest goals stand out as bullish. For a newspaper company with a lot less far to go in its rebound, consider E. W. Scripps (SSP, news, msgs). One of the few in the group that has managed to keep up with the times, Scripps owns papers in smaller towns, such as the Corpus Christi Caller-Times in Texas and the Albuquerque Tribune in New Mexico. Local markets have generally held up better than large metropolitan markets, as regional advertisers continue to find small-town newspapers the best way to reach shoppers of local consumables, such as movie tickets, used cars and local service jobs.
Scripps got into the broadcast television and cable programming game quite early, and has done well with Home & Garden Television and the Food Network. More recently, it purchased the Internet shopping comparison site Shopzilla, and plans to roll the brand out across its media assets. The company is probably only going to grow revenues in its publishing group at 4% to 5% over the next year, but with its strong electronic properties will likely continue to merit a premium price-to-earnings multiple in coming years.
Papers are probably unique among major corporations in that their principal product -- news reporting -- is nothing but a cost center and loss leader. Yet the CIA leak case has shown that reporting is a necessary burden to media organizations who still consider themselves responsible for advancing the democratic process. Over the next year or two, they probably have a better-than-even chance of making contrarian investors a buck at the same time.
Fine Print
To learn more, visit the Web sites of the New York Times, Tribune Company and Scripps. To check out Shopzilla, click here. To check out the future of classified advertising, check out your local Craigslist. For instance, here is Seattle's Craigslist.
Jon D. Markman is publisher of StockTactics Advisor, an independent weekly investment newsletter, as well as senior strategist and portfolio manager at Greenbook Investment Management. While he cannot provide personalized investment advice or recommendations, he welcomes column critiques and comments at jon.markman@gmail.com; put COMMENT in the subject line. At the time of publication, Jon Markman owned shares of the New York Times.
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