Will an Election Year Save Small Cap Newspaper Stocks? Media General (MEG), Lee Enterprises (LEE) & A. H. Belo Corporation (AHC)

The last few years have been tough for big city newspapers in the wake of declining advertising revenue due to a weak economy along with the rise of the Internet but what about small cap newspaper stocks likes Media General (NYSE: MEG), Lee Enterprises (NYSE: LEE) and A. H. Belo Corporation (NYSE: AHC)? After all, its an election year and expect plenty of advertising spending by politicians. In addition, its worth noting that despite declining advertising revenue, newspapers are still finding buyers and not just from readers. In fact and back in December, The New York Times Company (NYSE: NYT) was able to sell a group of 16 small, regional newspapers to Halifax Media Holdings LLC for $143 million – not bad for an industry said to be dying.

In addition and earlier today, Media General (NYSE: MEG), which owns three metropolitan (including the Richmond Times-Dispatch and the Tampa Tribune) and 20 community newspapers along 18 network-affiliated broadcast television stations, announced that they are exploring the sale of its newspaper operations and already have potential buyers lined up. These newspapers account for nearly half its revenue. However, its worth noting that Media General has also reported net losses of $22,638k (2010), $35,765k (2009) and $631,854k (2008) along with more net losses for 2011 but revenue for its digital properties is apparently still rising. Moreover, Media General reported strong Political revenues from the Republican primaries in South Carolina and Florida but the company expects a continued decline in total Print revenues and has no visibility as to how big the decline will be. In other words, it needs to do something big to turn itself around. On Wednesday, Media General fell 0.79% to $5.01 (MEG has a 52 week trading range of $1.14 to $7.50 a share) for a market cap of $116 million. Media General is also up 23% since the start of the year but the stock is also down 28% over the past year and its down 88.5% over the past five years.

Meanwhile, Lee Enterprises (NYSE: LEE) has 49 daily newspapers (including the St. Louis Post Dispatch) and a joint interest in four others, nearly 300 weekly newspapers and specialty publications in midsize markets in 23 states. At the end of January, Lee Enterprises exited from Chapter 11 bankruptcy after carrying out comprehensive refinancing agreements where the maturities of Lee’s borrowings (around $1 billion in total) were extended to December 2015 and April 2017 at higher interest rates– meaning the company will be able to stay in business at least for a couple of more years. Lee Enterprises has reported fiscal first quarter net income of $14.6 million - down 23% over the $18.9 million reported for the prior year's quarter and better than a net loss. On Wednesday, Lee Enterprises rose 0.89% to $1.13 (LEE has a 52 week trading range of $0.49 to $3.47 a share) for a market cap of $50.8 million. is up 60% since the start of the year but its also down 62% over the past year and 97% over the past five years. Lee Enterprises is also seeking shareholder approval for a 5 for 1 reverse stock split.

Finally, A. H. Belo Corporation (NYSE: AHC) is the publisher of the Dallas Morning News, The Providence Journal, The Press-Enterprise of Riverside (CA) and the Denton Record-Chronicle. In addition, A. H. Belo Corporation owns cars.com, apartments.com and homegain.com plus it owns real estate. On Tuesday, A. H. Belo Corporation reported its first profit in more than a year for 4Q2011 thanks to cost cutting but the company still loss $10.9 million for the entire year – better than the $124.2 million it lost in 2010. Moreover, A. H. Belo Corporation ended the year with cash and cash equivalents of $57.4 million but the company’s pension plans will require cash contributions of between $24 million and $27 million for this year. On Wednesday, A. H. Belo Corporation rose 0.39% to $5.18 (AHC has a 52 week trading range of 3.82 - 8.64 a share) for a market cap of $111.6 million. A. H. Belo Corporation is up 9% since the start of the year but its down 31% over the past year and 89% over the past five years.

The Bottom Line. In the short term, an election year along with an improving economy should help small cap newspaper stocks Media General (MEG), Lee Enterprises (LEE) and A. H. Belo Corporation (AHC) but the long-term outlook is not so rosy for any of these stocks.