[GCI fell below Dow Jones, S&P 500 indexes in July]
Gannett's stock closed yesterday at $12.34 a share, up 26 cents, or 2.2% -- pacing both the Dow Jones Industrial Average, up 1.9%, and the S&P 500 index, up 2.1%.Before markets closed, however, Anonymous@2:57 p.m took note of an important trend: "The GCI disconnect that began in July from the Dow Jones average is troubling. On a day when GCI should be popping, it has barely twitched."
Illustrating that point, the graphic, above, shows the year-to-date performance of GCI vs. the Dow Jones Industrial Average and the S&P 500 index. (Bigger, easier-to-read chart.) The arrow shows the point in about mid-July when GCI began trading below those two widely watched indexes, according to Google Finance data.
[Updated at 1:45 p.m. ET with more stock quotes.] So, year to date, GCI is now down 17%, while the Dow Jones average is up 4.1% and the S&P is up 3%. Other newspaper publisher stocks, with their YTD performance:
- E.W. Scripps: up 13.2%
- Lee: down 30.3%
- McClatchy: up 9.3%
- NYT: down 37%
Yes, but the truly accurate way to perform this assessment would be to do it for GCI as well as industry peers. This is because the sector of the market that a stock is in generally accounts for roughly half of its performance -- or nonperformance, as the case may be. How does GCI stack up alongside MNI, LEE, AHC, NYT and so forth, and how did those industry peers perform against the S&P compared to GCI?
ReplyDeleteIf you did this comparison, I think you would find that newspaper stocks in general have underperformed the stock market since the market peak of April 23. From roughly March 2009 till April 2010 newspaper stocks killed -- as in doubled, tripled and quadrupled. Not just GCI, but most of the others, too. They moved as a pack up. Since April, the sector has moved as a pack again -- this time down.
But you will notice that they have plateaued at much higher lows than the lows of March 2009. In very round numbers, GCI plateaued at a low of ~$4 or a bit lower in the spring of 2009. In the summer just ended, it plateaued at a low of ~$12 or a bit lower. This means there is solid price support for GCI at ~$11 to ~$12. Does than mean it cannot break through and go lower? No, of course not. It certainly can go lower.
But if the sideways stock market or slow upmarket trend continues, you will see GCI hanging in the $12 to $13 range. And when the uncertainty of tax increases is resolved by the Obama folks after the mid-term election debacle that will restore Republican power to at least the House of Representatives, you may well see a big stock market rally that will lift all boats, including GCI. And if those events are accompanied by Mr. Market's "rediscovery" (ala the March 2009 "discovery") that media stocks like GCI are prodigious cash-generating machines that do not deserve price-earnings rations of five, well then look out. You could see GCI at $25. Yes, GCI needs to reinvent itself. But there's nothing like a steady, profitable cash flow to buy you the time to do just that.
I know, I know ...GCI sux ... management is evil ... they broke the expressed or implied employer-employee covenant ... yada yada. But this analysis is about business, not personal animus. GCI is a buy at ~$11 per share. But LEE at ~$2 is an even better buy, though a tad riskier than GCI.
All the more reason to believe that Gannett needs to lop off a bunch more heads in the fourth quarter to boost cash flow and operating earnings and thereby inflate its stock price on the backs of its workers. What an uninspirational set of leaders we have. Companies like HP, Oracle and News Corp. grow not only with internally generated ideas that become product lines, but by making strategic acquisitions, too. Gannett has been in hopeless defensive mode for three years now. It sure would be nice for the board to make some wholesale management changes and bring in a Jack Welch type to instill a culture of excellence and to Roundup all the mediocrity.
ReplyDeleteI've now added the year-to-date stock performance of four other newspaper publishers. Two did better than Gannett, and two did worse.
ReplyDeleteJim.
ReplyDeleteI'm the guy who posted the long 8:26 a.m. post at the top. Thanks for your intelligent and fair-minded revisit of the issue. You do good work.
I'm a former GCI employee but, fortunately for me, my investment in GCI stock has been with discretionary money outside any retirement accounts I have. But many people here have retirements attached to GCI stock. That makes it very important for you to provide good information, since people who aren't savvy about the stock market and investing may consider some of the less-than-thoughtful commentary here actionable. (Example: "This company is heading for bankruptcy!") You provide a good service for folks whose retirements are attached to GCI by providing some thoughtful analysis. Folks should do their own due diligence as their individual needs dictate, but they shouldn't listen to the end-of-the-world types here who'd rather ventilate than think.
One of the key rules of investing is to NEVER, NEVER invest in your own company's stock. In fact, most people are nearly always better off directing their savings into mutual funds, and a variety of those as well to spread their risk exposure.
ReplyDeleteAs for newpaper investments, there isn't a good one to be had from my perspective, unless of course you're talking about purely expendable funds that you can do without.
Don't bet against the market. The current mood of the market is that newspapers are dead, so the lackluster response of GCI's stock should be no surprise. The market likes innovation. Look at Apple and Oracle as examples. The only innovation in the newspaper industry is to cut employees and staffing levels.
ReplyDeleteIf GCI were a growing company, it most certainly would be a bargain at today's prices. But it is not. The last quarterly report shows that publishing revenues have declined 6 percent over the last year, and so it on a downward cycle.
ReplyDeleteThis should come as no surprise to anyone working in the newspaper business, considering the declines in advertising and circulation. Until that stabilizes, I do not think it wise to put money into GCI, especially when there are more profitable returns to be found in other growing companies.
Has GCI lost the mutual fund investor crowd. I'm guessing that being tossed from preferred stock lists will cause the disconnect. Tech me.
ReplyDelete