Why You Should Sell Newspaper Stocks

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

By Lawrence Meyers

NEW YORK ( InvestorPlace) -- There are these little things called "secular trends" that all investors must be aware of.

For example, there is a secular trend toward viewing entertainment on mobile devices and computers, which is one reason why television viewership and the volume of movie admissions have dropped during the past 10 years.

Another secular trend is that people are abandoning newspapers, and for that reason you should sell all your newspaper stocks. The trend is your friend. Newspapers are not trending toward growth. They are contracting. Here's why, and a look at the stocks to sell.
  • Also see: Expect These Four Stocks to Pop This Week
  • Thanks to the Internet, people can get their news whenever they want, wherever they want. Mobile devices are the new instant newspapers: They provide up-to-the-minute news, whereas newspapers provide day-old news.

    Moreover, content providers are entering the field all the time, and a good story can come from anywhere, not just The New York Times.

    And in the case of fabulous blogs that publish stories that do not hew to what I consider to be the left-wing bias of most newspapers, people have started to realize that the truth is out there -- but not in the mainstream media.

    Then you have the convenience factor. It used to be that you went to the bagel store on Sunday and read that bulky newspaper. Now you can go the bagel store and read your iPad.
  • Also see: 3 Dividend Powerhouses With 8%-Plus Yields
  • As a result of these factors, eyeballs have migrated away from newspapers to the Internet. Circulation has fallen dramatically. In the first quarter of 2010 -- just choosing a random quarter -- the Audit Bureau of Circulations showed a 9% drop in circulation. That included a 23% drop in circulation for the San Francisco Chronicle. In the past six months, newspapers saw a 5% drop.

    When circulation falls, advertisers spend their dollars elsewhere. Newspapers are also really expensive to run, whereas Web sites aren't nearly as expensive.
  • Also see: How to Play Big Oil and Get a 9% Dividend
  • How bad is it?

    Washington Post Company ( WPO) hit a high of $983 a share in late 2004. It has never come close to that price since, and today shares trade at $330. In its most recent quarter, it reported a 20% drop in ad revenue. Even online revenue was down, by 14%.

    New York Times Company ( NYT) was a $51 stock in 2002. Today it trades at $7.50. Third-quarter ad revenue was down 6%.

    What about Gannett Co. ( GCI)? Well, things there are so bad that the company stopped reporting paid ad pages. The company replaced that detailed information with a simple and embarrassing statistic: National advertising fell 17%. Gannett trades at $11.32 and is not likely to see its 2004 high of $89 ever again.

    This is what we call a secular trend.

    If you own these stocks -- or for that matter McClatchy Company ( MNI), which is down to about a buck a share from $70 -- get out now. You are holding a highly flammable product with no future. In fact, you may even want to consider shorting. It's better than watching your money go up in flames.

    At the time of writing, Lawrence Meyers did not hold a position in any of the aforementioned stocks.


    This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.