I'd Still Rather Own Gannett Than Facebook
NEW YORK (TheStreet) -- Back in September, I went out on a limb in a column entitled I'd Rather Own Gannett Than Facebook. It was the type of piece that was a bit controversial at the time, because it suggested that the dinosaur was a better buy than the slick, newly public, must-own behemoth.
I don't mind being a contrarian, because that's part of what comes along with being a value investor. I also don't mind being wrong, because that comes with the territory, too. But in this case, so far anyway, the sentiments in that piece have demonstrated an important investment lesson.
In the eight months since that column ran,
Gannett
(GCI) - Get Report
has performed extremely well, with shares up about 52%, while
(FB) - Get Report
is up about 19%. Granted, 19% in nothing to sneeze at, especially given that the
S&P 500
is up about 12.5% during the same period. But Gannett has been the winner here, so far anyway, which may be ironic to many.
data by
Chances are, that you have more likely logged into Facebook in the past 24 hours than you have read a copy of USA Today, or any of the other Gannett-owned newspapers. Let's face it -- Facebook is still a somewhat shiny new object, used by millions. Some seemingly log every event of their day for all to see, quite annoying, I might add, and are practically addicted to it. That level of awareness and buzz is something that Gannett cannot claim. While Facebook has grabbed the headlines, Gannett has quietly gone about its business, successfully resurrecting a company that looked like it might go under just four years ago.
The investment lesson here is all about expectations. Little has been expected of Gannett, and the company has flown under the radar, paying down debt, raising its dividend, buying back shares, and delivering some very good results since 2009. What has long been seen as a newspaper company is much more, and the market may finally be figuring that out. Gannett's broadcasting segment generates much of the company's operating income, and last month's surprise bid for
Belo
(BLC)
will expand that business dramatically.
Meanwhile, expectations for Facebook have been huge. Despite a 24% pullback since late January, shares still trade at seven times 2014 consensus revenue estimates, and this is still a $60 billion market-cap company.
Now, there's no question that this is
not
a fly-by-night business with no prospects. There's $9.5 billion in cash and short-term investments on the books, and the company has delivered some solid margins. But high expectations and the inability to deliver the lofty growth expected by investors are the reasons that the stock is down 45% from its all-time high the very first day it traded, May 12, 2012.
Take the ugliest looking company, the "dog with fleas" of which little is expected. Compare it to the latest Wall Street growth darling. If the former can show some signs of life, a turnaround of sorts, its share price is somewhat likely to prosper. If the latter, with built-in high expectations can't deliver, watch out. That's why I'd still rather own Gannett than Facebook.
High, unachievable expectations can be dangerous to the wallets of unsuspecting investors. A company's products may seem cutting edge, but there's often a disconnect between price and value. On the flip side, "dogs with fleas" don't always turn around, but I'll save the "value trap" discussion for another day.
At the time of publication the author held no positions in any of the stocks mentioned.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
At the time of publication, Heller was long XXXX.
Jonathan Heller, CFA, is president of KEJ Financial Advisors, his fee-only financial planning company. Jon spent 17 years at Bloomberg Financial Markets in various roles, from 1989 until 2005. He ran Bloomberg's Equity Fundamental Research Department from 1994 until 1998, when he assumed responsibility for Bloomberg's Equity Data Research Department. In 2001, he joined Bloomberg's Publishing group as senior markets editor and writer for Bloomberg Personal Finance Magazine, and an associate editor and contributor for Bloomberg Markets Magazine. In 2005, he joined SEI Investments as director of investment communications within SEI's Investment Management Unit.
Jon is also the founder of the
, a site dedicated to deep-value investing. He has an undergraduate degree from Grove City College and an MBA from Rider University, where he has also served on the adjunct faculty; he is also a CFA charter holder.