Berko: Hold or Sell Gannett stock?
Friday, March 07, 2014 7:00 AM
Dear Mr. Berko:
I bought 800 shares of Gannett Co. Inc. (editor’s note: Gannett owns The Des Moines Register ) for my individual retirement account in March 2009 at $2.30 a share and have a mind-blowing profit of $20,000. I bought it because my dad, who held various midlevel positions at Gannett for 31 years, believes it’s the greatest newspaper company in the country, with the finest reporters and the best editorial staff. I think it’s time to take a profit, but my dad says it could go back to $80 or $90 a share. Please advise me.
It would be wonderful if Gannett (GCI-$29.25) could return to its lofty prices of a decade ago, when the price topped $100 a share. However, your dad’s perceptions are in the past, when newspapers influenced public opinion and folks read them to keep informed. Those glory days are gone.
In your dad’s time, newspapers were a bastion of literacy. Their purpose was to educate the reader and make money in the process, and they were great employers. They were also exciting to read because reporters wrote the news with verve and style that reflected their personalities.
But those days of panache, urbanity and pizazz are gone; newspapers’ reporting has been subsumed by digital flat-line personalities that have the emotional range of Formica. And the ubiquitous but unappreciated copy editors who made every reporter a great writer are gone. Today’s editors are tasked to reduce costs while competing for the reader’s attention against a titillating Internet. Newspapering today is pure bottom-line.
Between 2004 and 2013, Gannett, a multibillion-dollar media giant (82 daily papers), shed more than 20,000 employees. And since 2004, GCI’s revenues have declined from $7.5 billion to a possible $5.9 billion this year; cash flow has collapsed by 50 percent; capital spending has fallen by 60 percent; and net profit margins have imploded from 18 percent to 8 percent.
The public doesn’t feel the need to read today, because it learns everything from TV and the Internet. But if we’re considering the purchase of a car, furniture or a home, the daily paper executes a superb presentation of the product. In the past, the papers used news stories to attract readers to the advertising pages, but those days are gone. So GCI has been changing its business model to meet these new challenges.
Many folks who have made big gains in the market bought good stocks when nobody wanted them and held on for 25 years. You bought this media giant at $2.30 a share in 2009, when no one would touch it. If you keep it for 15 years, you may see it rise to $100 again.
Founded in 1906, GCI has never lost money. In addition to 82 daily papers, including its popular and profitable USA Today, GCI has an equal number of affiliated online sites. It also runs hundreds of other websites, reaching a reported “52 million unique users monthly.” Gannett has 600 community papers, magazine titles, trade publications for health care professionals, and military and defense publications. It owns 23 network-affiliated TV stations, viewed by 18.2 percent of the U.S. population, and it has 17 daily papers in the U.K. And GCI manages all of this with the help of 31,000 employees.
GCI may be a good long-term investment. Revenues for 2014 are expected to grow 18 percent, and earnings should rise from last year’s $1.60 per share to $1.95. Vanguard owns 7 percent of GCI’s 230 million shares, which some analysts think will trade in the mid-$30s this year. However, the 80-cent dividend, which yields 2.7 percent, is not expected to be raised this year.
Meanwhile, you might consider buying shares of some of the well-known smaller public papers that are floundering and then forget about them for a decade. I think that like the South, the newspaper business will rise again.
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