Are Newspapers the Modern Day Horse & Buggy Whip?
Looking at the share prices for the newspaper industry, you would think that this is like investing in the horse & buggy whip just before the ascent of the automobile.
The 5-year chart above illustrates the beating taken by the leading North American newspaper companies. The main candlestick chart, along with the P/E ratio and yield is for Torstar, one of the leading Canadian newspaper companies. Practically every single company is down 50% to 90%.
One of the interesting things is that the market is pricing well ahead of any severe collapse in profits. You would think that all these companies are posting big losses and on the verge of bankruptcy but, ignoring the several that are heavily leveraged or really struggling, they will still post profits and do not have liquidity or insolvency issues. Either the market is wrong with the industry; or it is re-pricing for a new future. Even if the companies survive, market expectations are much lower right now.
Another interesting thing, from what I could gather, is that newspapers in other areas of the world are doing fine. Newspapers in the developing countries are in their infancy so they are booming (think the 1930's in USA); and newspapers in Europe seem to be doing ok from what I understand (they seem to depend more on subscription but I suspect they are a few years behind the US and will face similar problems.)
Newspapers are one of the ultimate contrarian areas... but they also may be a textbook example of a value trap that investors will study decades from now. Certainly anyone that invested in them in the last 5 years will tell you that it is starting to resemble more and more like a cage that they can't get out of...
The 5-year chart above illustrates the beating taken by the leading North American newspaper companies. The main candlestick chart, along with the P/E ratio and yield is for Torstar, one of the leading Canadian newspaper companies. Practically every single company is down 50% to 90%.
One of the interesting things is that the market is pricing well ahead of any severe collapse in profits. You would think that all these companies are posting big losses and on the verge of bankruptcy but, ignoring the several that are heavily leveraged or really struggling, they will still post profits and do not have liquidity or insolvency issues. Either the market is wrong with the industry; or it is re-pricing for a new future. Even if the companies survive, market expectations are much lower right now.
Another interesting thing, from what I could gather, is that newspapers in other areas of the world are doing fine. Newspapers in the developing countries are in their infancy so they are booming (think the 1930's in USA); and newspapers in Europe seem to be doing ok from what I understand (they seem to depend more on subscription but I suspect they are a few years behind the US and will face similar problems.)
Newspapers are one of the ultimate contrarian areas... but they also may be a textbook example of a value trap that investors will study decades from now. Certainly anyone that invested in them in the last 5 years will tell you that it is starting to resemble more and more like a cage that they can't get out of...
Hey Sivaram,
ReplyDeleteI'm a momentum style trader of stocks/options and have been trading for 10 years. I believe I have some good insight to offer, so I started a trading blog about a month ago, http://zentrader.ca and also provide watchlists (long/short) for traders who either don't like research, don't have time, or just want to see what others are finding in their scans. I’m purely a technical trader and also do general market commentary as well and I’ve recently registered with Covestor to add credibility to my site. I post regularly and am ready to generate more traffic, so I'm looking for other traders who'd like to exchange links. I'm selective about whom I work with though, and think that your site is one of the better ones. I’d welcome any advice you may have on how to generate more traffic.
Thanks for your time. Feel free to reply with any questions you may have.
Jeff Pierce
http://zentrader.ca
I'm not a trader and don't really follow that investing style so I have no interest in exchanging links. However, readers of this blog that find your insightful useful can visit you at the link you provided...
ReplyDeleteNot much to say Siv,
ReplyDeleteIndustry is dead. Only ones worth anything is the NYT and WSJ. Im interested if WSJ.com will be free. What ya think?
-Alex
Alex -- I may have missed the latest, but Murdoch came out and said WSJ.com wouldn't be free sometime back.
ReplyDeleteSivaram -- Even if newspapers make it, they're going to suffer during the downturn due to less ad revenue. I own Media General, and it has absolutely tanked. I thought I'd be protected because the company only has 3 major dailies, the rest of its papers being community papers (which fair better). Plus it has network TV stations. But no luck. The only good thing I can say about it is that it is much cheaper than when I bought it, and Francis Chou has come in (at a much lower stock price, of course).
I wish you better fortune than I've had so far. I think a position in a newspaper-related stock makes sense. Newspapers won't become extinct. But my humble suggestion would be to make it a small part of your holdings.
Alex: "Industry is dead. Only ones worth anything is the NYT and WSJ. Im interested if WSJ.com will be free. What ya think?"
ReplyDeleteAs John mentions, the current plan is for the WSJ to be subscription only. Murdoch floated with the free idea but decided not to do anything for the time being. I think it will become free at some point but probably not for years.
Even though you say the industry is dead, one of the reasons I'm still contemplating the industry is because they are still the content providers. You will notice that most of the stories on the web, whether from news aggregators (Google News, etc), portals (Yahoo, MSN home page, etc), or blogs, keep using the newspaper stories for their source.
Someone still needs to do the journalism and the newspapers have a big advantage on that front right now. Even the websites of TV stations (CNBC, CNN, Fox, etc) don't provide as much news as the newspapers.
The real question is whether they can monetize their content in the online world. That's the part that makes me wary. If most of the profits end up accruing to the enablers and portals (eg. Google, blogs, etc) then investing in the papers is not going to be very profitable.
John: "Even if newspapers make it, they're going to suffer during the downturn due to less ad revenue. "
ReplyDeleteYeah, that's a very good point and it is actually something I have been thinking about. That's one of the reasons I have not done anything yet (even though I have done enough research to invest). I'm waiting for earnings to come out (Torstar is later this month; Gannett already published; and so on). I will consider buying after any negative news is priced in (assuming it hasn't already happened).
"I own Media General, and it has absolutely tanked. I thought I'd be protected because the company only has 3 major dailies, the rest of its papers being community papers (which fair better). Plus it has network TV stations. But no luck. The only good thing I can say about it is that it is much cheaper than when I bought it, and Francis Chou has come in (at a much lower stock price, of course)."
The risk for investors is a take-under. I don't know who in the right mind--except the gravedancer himself, Sam Zell--would want to try an LBO but it is possible that some of these may be taken private through a leveraged buyout at low prices. That can crystallize paper losses into something real. Although the dual-class share structures are generally inefficient and bad, this is one case where such a structure will prevent a take-under.
I didn't know Francis Chou had invested in MEG. That's a pretty good sign. He, along with Prem Watsa, have also invested in Torstar. Watsa also invested in Canwest, a Canadian media property, if I'm not mistaken.
"I think a position in a newspaper-related stock makes sense. Newspapers won't become extinct. "
Yeah... I'm just uncertain about their ability to monetize their content. If there is a paradigm shift, where the profits that accrued to the papers in the past shifted to content-enablers (portals, search engines, etc) then this can be a disastrous investment.
"But my humble suggestion would be to make it a small part of your holdings."
The problem is that I'm trying to see if I'm cut out for a concentrated portfolio. So far it has been a disaster but we'll see how the future unfolds. Furthermore, I look at beaten up stocks so newspapers in some sense are just a bit more risky than anything else I would look at. For example, would any of the beaten-up banks (ignoring mega-caps) be any safer? Would Sears (something I have thought about a lot) be safer? I wonder. Although the papers keep sliding, their low valuations may make up for some their risk...
Sivaram,
ReplyDeleteI understand where you're coming from that you don't follow momentum stocks and if you base your decision to exchange links based on that reason alone you are correct to decline. However I thought your site offers quality content and my readers don't necessarily subscribe to your train of thoughts, but I feel it's important to be thorough in research and reading a contrarian blog could be useful to momentum style investors who might be looking for up and coming trends. Just as your readers may do well to be informed of what's moving in todays markets. I didn't just want to exchange links to exchange links, I just wanted you to know that.
Happy investing