| NEW YORK
NEW YORK Want to buy newspaper stocks? You
should see an analyst. Trouble is there aren't many around
As the valuations of U.S. newspaper publishers plunge and
investor interest wanes, the ranks of stock analysts who rate
their performance are thinning.
In some ways, there is less need for them as the trend is
clear: the U.S. newspaper business is in bad shape and getting
worse as readers and advertising dollars flee to the Internet
and other new forms of media.
But the void in smart thinking on the publishing sector
could exacerbate an already bleak view of the business.
"The fewer analysts you have ... the less information
that's distributed, the less appearance there is in the minds
of institutional investors," said longtime newspaper analyst
John Morton, who runs his own research firm. "And so it
diminishes the industry as a whole."
Two years ago, investors could get research from more than
a dozen analysts. Now, they are lucky to find half that number.
Prudential cut all its sell-side analysts as it exited the
research business and other firms have pruned, including
Citigroup, Morgan Stanley and UBS.
Much of that stemmed from slowing revenue in slumping
financial markets as well as regulatory changes that make big
research departments less affordable for investment banks.
Failure to replenish these ranks could wipe out decades of
intelligence, and critical thinking about the business of
newspapers could well disappear over time.
"You lose a real sense of institutional history when you
lose somebody who's been through one or two cycles," said
Lauren Rich Fine, a respected, 19-year analyst at Merrill Lynch
who retired in 2007.
"It's so unclear what's going to happen... but if I were
running research, I don't think I'd need a newspaper analyst
today," Fine said.
BEATING DEAD HORSES
The logic behind assigning analysts is simple: their
research and recommendations on company stocks encourage
brokers and investors to route trades through the analyst's
bank and can help form closer investment banking ties. But when
trading volume drops, banks make less money and the analyst's
value to the firm slips.
Shares of McClatchy Co, publisher of the Miami Herald, are
down 77 percent this year; Lee Enterprises Inc, which owns the
St. Louis Post-Dispatch, is down 84 percent. The largest of
them all, USA Today publisher Gannett Co, is trading at a
nearly 17-year low.
Analysts help investors go beyond the general perception
and provide deeper reports on factors affecting individual
Deutsche Bank analyst Paul Ginocchio, for example,
predicted that a high-profile consortium between newspaper
publishers and Yahoo Inc could help the papers turn around
their revenue declines by 2009. Yahoo and the publishers, by
contrast, have provided no such assurances.
In the absence of critical analysis from Wall Street,
bloggers and industry executives have grown in importance.
Outsell Inc's Ken Doctor and Alan Mutter, a venture capitalist
and former newspaper editor who runs the blog Reflections of a
Newsosaur, are two well-read commentators.
Fine, formerly of Merrill Lynch, has also found a new
audience for her expertise on popular digital media blog
As for the sell-side, the analysts who remain -- such as
Goldman Sachs analyst Peter Appert -- often cover other sectors
that command more investor attention.
"If I covered only the newspaper industry, first of all I
would have been fired a long time ago; secondly, I would have
had to kill myself," Appert said.
(Editing by Leslie Gevirtz)