Newspaper stocks good, but avoid McClatchy

A Wall Street Journal story reports newspaper stocks have been depressed by the industry's woes. But some could reward investors because the companies possess valuable nonprint assets like TV stations and Internet properties, as well as still-profitable papers.

In contrast, investors probably should avoid two weaker newspaper companies: debt-laden McClatchy (MNI) and Lee Enterprises (LEE).

Only about 25% of adults from 18 to 34 read a daily paper. Newspapers, however, remain an important source of local news, and they have done a good job of cutting costs, resulting in healthy profit margins of around 20%.

Gannett, at about $14 a share, trades for less than seven times projected 2011 profits of $2.20 a share. Mr. Arthur argues that it's cheap, given the value of its 23 TV stations around the country and its digital properties, notably a 51% stake in CareerBuilder.com, a leading online jobs website. Mr. Arthur has a $17 price target.

New York Times, at around $8, looks appealing, based on a sum-of-the-parts analysis that factors in its ownership of the About.com website, along with the Boston Globe, some regional newspapers and a 16% stake in the Boston Red Sox and that team's regional sports network. When these assets are taken into consideration, investors may be paying little for the Times' flagship paper. Bulls see the stock hitting $10, where it traded earlier this year.

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