Never underestimate the power of merger activity in one corner of a sector to rekindle the energy of sclerotic stocks in a related field.

We have seen that happen in spades among the once-moribund department-store stocks. They rediscovered their youthful mojo recently after the bid by

Kmart

(KMRT)

for the grandest dame of them all in retail land,

Sears

(S) - Get Report

.

After slumbering along at multiyear lows until a month ago,

Saks

(SKS)

and

May Department Stores

(MAY)

suddenly have new life, even without the benefit of much improvement in sales.

Now one wonders whether a similar situation might unfold in the newspaper industry. The industry has been rocked by a circulation scandal, it failed to capture a significant share of political advertising in the past year, and it has suffered from a slow seepage of classified-ad revenue toward upstart Internet companies it does not control.

You will be forgiven if, in the rush of holiday merrymaking, you did not notice the news that the venerable

Pulitzer

(PTZ)

put itself up for sale on Nov. 22 and saw its shares jump $9 in a day. As recently as August, Pulitzer shares were lollygagging at a one-year low of $43.75, but speculation has now pushed them as high as the mid-$60s. On Friday they closed at $63.65.

My models suggest that at least two other newspaper/television companies now near their lows might similarly find favor over the next few months. Perhaps not as quickly as Pulitzer, but eventually. All of these are well-run outfits with unusual strength in their niches, but light earnings trends recently have marginalized them to the care of value players.

The Green Lady

The first is

New York Times Co.

(NYT) - Get Report

. Shares have levitated a bit above their one-year low of $38.47, but even at Friday's close of $41.01, they're still trading at around mid-1999 prices.

The company, which has been rumored as a potential bidder for Pulitzer, has been able to improve its national circulation and advertising more than many skeptics suspected, and its holdings in cities far from New York have given its revenue base some badly-needed geographic diversity.

With advertising likely to rebound in 2005, figure that this company can grow revenue 3% to 4%. Paste on a 1.5% dividend yield, a little price-to-earnings multiple expansion and some M&A fever, and the stock could get to $50 in the next 12 to 18 months. That's not a huge advance, of course, but the downside risk at this level isn't great either.

Gannett

(GCI) - Get Report

shares are also not far from their one-year low around $79, though they bounced $3 to the $82 area in the past week on the Pulitzer news. Last month the company reported 4.4% ad revenue growth in October. That was less than bulls expected, as it followed a 6.5% growth rate in September and a 7.3% growth rate in August. Broadcast revenue also disappointed. Classified and retailers' ads weren't so bad, but national advertising at

USA Today

slipped a whopping 6.2%.

The good news is that Gannett has turned in consistent earnings growth over the past three decades that's the envy of the industry with relatively low volatility, it is highly leveraged to a rebound in the overall economy in the next year, and it has consistently kept shareholders in focus by buying back stock and repaying debt with its prodigious cash flow. It's not very cheap by any means, but renewed interest in the sector could help Gannett see improvement to a new high in the $95 area in the next 12 to 18 months so long as the U.S. economy ekes out 3% growth.

Private Capital Management, the cagy value-oriented outfit run by Bruce Sherman in Florida, increased its ownership of the New York Times Co. by 1.5 million shares to a 12.4% stake in the third quarter, according to Compushare data, augmenting its role as top shareholder. The fund also increased its ownership of Gannett by 540,000 shares in the third quarter, becoming the company's third-largest owner with a 3.9% stake.

P.S. Don't forget -- now is a great time to get in on bargain stocks before the prices go up. Get my picks with a

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TheStreet.com Value Investor

.

At the time of publication, Markman was long Kmart, although positions may change at any time. Jon D. Markman is publisher of

StockTactics Advisor, an independent weekly investment research service, as well as senior strategist and portfolio manager at Pinnacle Investment Advisors. He also writes a weekly column for

CNBC on MSN Money. While Markman cannot provide personalized investment advice or recommendations, he welcomes column critiques and comments at

jon.markman@thestreet.com.

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