Arguably the most hated group of stocks over the last decade has been the newspaper stocks. The charts below show shares of USA Today owner Gannett (GCI), and New York Times owner (NYT) over the last 10 years.
The charts do a good job at justifying what has happened to these once great stocks. Firstly, the emergence of the internet as the major news source has had a significantly negative effect on GCI and NYT. Newspaper sales continue to go down over time as more people turn to free online news sources. While their core business has and continues to suffer, GCI, NYT, and other previously print only news services have attempted to re-invest themselves with new forms of media.
Both USAtoday.com & NYtimes.com have become major online news sources. GCI and NYT have also launched impressive news Apps for smartphones such as the I-phone. Both GCI and NYT continue to have a strong foothold on the local news market as well. GCI owns 82 newspapers, 600 magazines, 23 TV stations, and UK media conglomerate Newsquest. In addition to the New York Times, NYT owns the New England Media Group, which includes The Boston Globe & Boston.com. NYT also owns About.com which is a major search site.
NYT and GCI are diverse media companies that are no longer solely reliant on the declining newspaper business. However, the stocks give very little value this vital transformation. GCI has a market cap of 3.1 Billion & trades at just 6.2 times earnings. Earnings were up 57% year over year while earnings were down 13% on average over the last 5 years. While earning have been in decline over the long term, GCI seems to have put a stop to this trend with its new business approach that focuses on new forms of media such as apps. NYT is smaller with a market cap of 1.1 Billion, and trade at a slightly higher PE ratio of 11. These number indicate that from a fundamental point of view, these stocks are cheap.
Between NYT and GCI they are both similar, but which one is the better buy? I have to go with NYT for two reasons. Firstly, NYT is a smaller market cap thus its more likely to be taken over. NYT could attract a wide range of buyers because of its stories name and influence. Secondly, NYT has had significant insider buying over the last few months. 850,000 shares were purchased in September and 1,000,000 shares were purchased in July.
It is time for investors to give NYT and GCI a second thought. NYT and GCI are now beneficiaries of the new media age. Other newspaper stocks to consider are (MNI), and (AHC).