Q: At 18, the stock trades at less than six times forward earnings.

A: We got interested in it when it was in the 20s, so we are not too bad off now. We are not blind to the changes that are occurring in the newspaper industry. I can't draw the plan that they are going to use, but I know that most of these guys, particularly the guys at Gannett, get it.

Gannett, whose shares have fallen this year by 54%, to 18, after a 35% decline in 2007, is the leader in what may be the most hated market sector: newspapers. Its second-quarter earnings were down 22%, to $1.01 a share, and the rest of the year looks difficult. A lot of bad news, however, already is in its shares, which trade for less than six times projected 2009 profits. Gannett is a long way from going out of business. Instead, it's a highly contrarian investment. Investors get a 9% dividend yield, well-covered by earnings.

Market Perform - Price: $16.57 on July 15
by Barrington Research

[Quarterly] earnings per share of $1.02 ($1.01, adjusted to exclude nonrecurring pension and severance items) were essentially in line with our $1.01 estimate and the $1.02 consensus estimate. Revenue of $1.7 billion in the quarter also matched our expectation. We are reducing our estimates once again to reflect the worsening in the ad-revenue trends.... Classifieds were down 21.6% in June, even more than the 18.8% decline noted for May, bringing the six-month category collapse to 17.4%. During the second quarter, publishing ad revenues fell 13.5%. By category, retail declined by 8.3%, national by 14.0% and classifieds by 18.7%. Within the classifieds grouping, real estate dropped the most, at 29.5%, followed by employment at 23.2% and automotive at 13.4%. The unrelenting downward slope [in Gannett's share price] is stunning, particularly when one considers that the Ebitda [earnings before interest, taxes, depreciation and amortization] we now forecast for 2008 and 2009 represents a decline of about 33% from peak to trough. In contrast, the stock price variance from peak to trough just this year is more than 70% and more than 80% from levels reached earlier this decade. While we recognize that meaningful near-term catalysts are clearly lacking, we feel Gannett is better-positioned than most publishers to generate meaningful cash flow from its print businesses as it continues to invest in ancillary projects, online and otherwise. While it is difficult to argue strongly about a significant and immediate upturn in the price of Gannett, we feel that further downward pressure...is unwarranted unless one is willing to take the position that the remainder of Gannett's earnings remain at serious risk and/or the potential for significant financial strains is great -- neither of which are among our assumptions.

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He will sell a position if the price rises to his estimates of intrinsic value, fundamentals deteriorate, a position becomes more than 7% of the portfolio, or he wants to swap a holding for one that's more attractive. Thus, out went Sara Lee (SLE) and Gannett (GCI) last quarter.

Gannett (GCI) was downgraded from Outperform to Peer Perform, Bear Stearns said. Fundamentals continue to deteriorate, and the stock is up 17% from its recent lows.

An underappreciated asset is its TV business, which could be worth $4 billion, or $17 a share. Strip that away, and investors are paying only five times pretax cash flow for Gannett's newspapers. If the stock continues to struggle, pressure could mount for a higher dividend.

I think they will sell-out soon on media control play. They own the USA today newspaper.

Cheap

3.2%

Prints money in the form of newspapers but has failed to give X and Y gens an alternative

good management but failing business