Contrarian analyst likes newspaper stocks


Stocks down 46 percent in 5 years while profits flat. Buy sign?

Don’t try to catch a falling knife! I’ve heard that from investors leery of buying stocks, much less industries, in decline. And there is a buggy whip aroma around newspaper and other mass media stocks these days, what with the Internet gobbling up advertising and the mortgage crisis pushing the economy toward recession.

Against this backdrop, Credit Suisse financial analyst John Klim has issued a contrarian analysis suggesting that publicly traded newspaper stocks in the United States have been excessively punished by investors who cannot imagine the upturn that he anticipates circa 2009. In brief, Klim thinks the general economy will rebound by then, like the tide that lifts all boats, and that newspapers will continue their ongoing transformation into multi-media delivery platforms. For more on Klim’s report see Joseph Weisenthal’s summary in Paid Content.

My take? I’ve been a business reporter for 15 years so I have a vested interest and/or experience at watching industry cycles. Plus I am a born contrarian. Taking those factors into account Klim’s analysis of the financials makes sense to me. The herd always runs too far, and at some point creates the buying opportunity for those willing to buck the trend. But back to the falling knife, I think it’s more likely that these stocks will get hammered more in the short term owing to the likelihood of a poor year-end for the U.S. retailers and thus advertising. If you’ve been sniffing around for a buy sign I’d say watch the herd for a while longer, then then jump in early in 2008 with a strategy of accumulating slowly because the knife is likely to continue to fall throughout the year, testing your resolve in what I suspect is a three to five year bet.

So I am reasonably confident that newspapers will rebound financially. I am far more pessimistic about the quality of newspaper journalism, which I consider to have been on a steadily declining slope throughout my adult lifetime. My favorite peeve, of course, is the complicity of newspapers in spreading misinformation, if not lies, about WMDs that led the United States into Iraq. But I’m also of the opinion that the media, led by its news “muscle” in daily journalism, pumped up Internet stocks in the late 90s, then touted housing in the aftermath of 9/11. Until and unless journalists admit that they have failed to perform their watchdog role, that they have become the Monday Morning Quarterbacks of public affairs, there is no hope that they will fulfull the mission that is the myth of their craft and the motivation of curmudgeons like me.