Stocks down 46 percent in 5 years whileÂ 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,Â in decline. AndÂ there isÂ a buggy whip aromaÂ aroundÂ newspaper and other mass media stocks these days, what with the Internet gobbling up advertising and theÂ mortgage crisis pushing the economy toward recession.
Against this backdrop, Credit Suisse financial analyst John Klim hasÂ issuedÂ a contrarian analysisÂ suggesting thatÂ publicly traded newspaper stocks in the United StatesÂ 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, andÂ 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?Â 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 thoseÂ 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 becauseÂ the knifeÂ is likely toÂ continue to fall throughout the year, testing your resolve inÂ whatÂ I suspect is a threeÂ to five year bet.
So I am reasonably confident that newspapers will rebound financially. I am far more pessimistic about theÂ 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 spreadingÂ misinformation, if not lies,Â 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 admitÂ that they have failed toÂ perform their watchdog role, that they have become theÂ Monday Morning Quarterbacks of public affairs, there is no hopeÂ that they will fulfullÂ the mission that is the myth of their craft and the motivation of curmudgeons like me.