Shades of Gray for Newspaper Stocks

Newspaper publishers will deliver their final dispatch for the third-quarter earnings season Thursday, with reports due from The New York Times (NYT Quote), Belo (BLC Quote) and Tribune (TRB Quote).

So far, results from the sector have amounted to a jumble of restructuring charges and red ink as the newspaper business continues to grapple with higher costs, lower ad revenues and circulation, and the dramatic changes in the way consumers are digesting information in the digital age.

Thursday is expected to be no different, as The New York Times and Belo each warned last month that earnings would be weak.

Such warnings have been commonplace at newsprint purveyors, and John Miller, portfolio manager with Ariel Capital, says he has never seen such negative sentiment on Wall Street about the business. For that reason, he sees opportunities to find long-term value in the sector as investors flee the scene.

"The dominance that newspapers possess in local markets thanks to the relationships they've built with consumers for centuries is hard to replicate," says Miller, whose firm is one of Tribune's largest institutional holders.

"There's a transformation taking place in the industry, and ad dollars have moved away towards new media, but some of it will come back," he adds. "And in terms of traffic, newspaper sites still dominate the Web for local information. Investors need to stop viewing these companies as newspaper businesses and start viewing them as information providers."