Warren Buffett Thinks Newspaper Stocks Can Be Profitable: Should You? New York Times Company (NYT), Washington Post (WPO) & Gannett Co. (GCI)

Surprise, surprise: Warren Buffett has struck a deal earlier this month to acquire 63 newspapers because he thinks free news is unsustainable, meaning it might be time to take a look at a few well known newspaper stocks like The New York Times Company (NYSE: NYT), The Washington Post (NYSE: WPO) and Gannett Co. (NYSE: GCI) that aren’t exactly on Buffett’s radar screen. Specifically, Berkshire Hathaway (NYSE: BRK-A) announced last week that it plans to buy 63 newspapers from Media General (NYSE: MEG) for $142 million and he plans to buy more. However, Buffett’s focus will be on small to mid-sized newspapers in towns and cities with a strong sense of community and he also believes that all newspapers need to quit offering their news products for free online. Nevertheless, Buffett’s current view about newspapers is a far cry from his previous view in 2009 that newspapers were destined to have unending losses. With Buffett’s newspaper strategy in mind, should investors consider The New York Times Company (NYT), The Washington Post (WPO) and Gannett Co. (GCI)? Here is a closer look to help you decide:

The New York Times Company (NYSE: NYT) Has Seen Digital Subscriptions Soar

The New York Times Company is the owner and publisher behind The New York Times, the International Herald Tribune, The Boston Globe, NYTimes.com , BostonGlobe.com , Boston.com , About.com and related properties. Investors should be aware that The New York Times Company has reported falling revenues for the past four years of $2,162.97M (2011), $2,231.85M (2010), $2,272.78M (2009) and $2,681.19M (2008) plus the following mixed bottom line results:

• -$39.67M (2011)
• $107.70M (2010)
• $19.89M (2009)
• -$57.84M (2008)

Nevertheless, The New York Times Company seems to be getting the digital game right as it for the six-month period ending March 31, 2012, it reported gains in total average circulation of 73% for Monday-Friday and 50% for Sunday largely due to the popularity of digital subscription packages while print editions reported declines of modest declines of -4.5% for Monday-Friday and -1.1% for Sunday. However, The New York Times Company does not pay a dividend. On Thursday, The New York Times Company rose 3.65% to $6.54 (NYT has a 52 week trading range of $5.50 to $9.73 a share) for a market cap of $968.20 million fell 15.4% since the start of the year, down 14.95% over the past year and 73.8% over the past five years.

The Washington Post (NYSE: WPO) Had a Grim First Quarter in Its Newspaper Division

The Washington Post is a diversified education and media company with educational services (it owns Kaplan, Inc., known for its test preparation services), newspaper print and online publishing, television broadcasting and cable television systems. In other words, the The Washington Post is more than just the Washington Post newspaper. Investors should note that The Washington Post had reported rising revenues up until last year of $4,076.05M (2011), $4,553.17M (2010), $4,200.17M (2009) and $4,087.62M (2008) and the following bottom line results:

• $117.15M (2011)
• $278.11M (2010)
• $92.77M (2009)
• $65.72M (2008)

However, The Washington Post had a grim first quarter where the newspaper division’s revenue fell 8% with revenue from print advertising falling 17% and the entire newspaper unit loosing $22.6 million. Worst, the The Washington Post reported one of the biggest circulation drops of any major newspaper as the all important Sunday edition saw 5.2% fewer copies sold while the daily edition saw circulation fall about 10%. The Washington Post does have a forward dividend of $9.80 for a dividend yield of 2.90% but that may not last forever. On Thursday, The Washington Post rose 1.26% to $339.35 (WPO has a 52 week trading range of $308.50 to $454.97 a share) for a market cap of $2.59 billion plus the stock is down 9.9% since the start of the year, down 18.6% over the past year and down 55.8% over the past five years.

Gannett Co. (NYSE: GCI) Pays a Juicy Dividend With a Catch

Gannett Co. owns 82 US daily newspapers which reach 11.6 million readers every weekday and 12 million readers every Sunday plus the company’s Broadcasting Division has 23 TV stations that reach 21 million households and covers 18.2% of the US population. Its also worth noting that Gannett Co. owns USA TODAY, the nation's No. 1 newspaper in print circulation which reaches a combined 5.9 million readers daily. Investors should be aware that for the past four years, Gannett Co. has reported steadily decreasing revenues of $4,983.80M (2011), $5,185.06M (2010), $5,249.83M (2009)and $6,291.55M (2008) plus the following bottom line results:

• $458.75M (2011)
• $588.20M (2010)
• $355.27M (2009)
• -$6,647.56M (2008)

Its also worth noting that Gannett Co.’s stock was rising for some six months on decent online revenue growth and successful cost cutting initiatives but that ended when the company reported that first quarter profits fell 25% because advertising revenue has continued to fall. Nevertheless, Gannett Co. has a forward dividend of $0.80 for a dividend yield of 6.2% but one also has to wonder just how long this juicy dividend will last for. On Thursday, Gannett Co. rose 2.18% to $13.10 (GCI has a 52 week trading range of $8.28 to $16.26 a share) for a market cap of $3.08 billion plus the stock is down 2% since the start of the year, down 10.8% over the past year and down 78.1% over the past five years.

The Bottom Line. A closer look at newspaper stocks The New York Times Company (NYT), The Washington Post (WPO) and Gannett Co. (GCI) would seem to indicate that unless they can encourage digital subscriptions or more advertising revenue, they could eventually prove Warren Buffett’s 2009 prognosis correct.