Oct 20, 2009 @ 03:49 pm
The last time this happened investors made 10 to 20 times their money.
Now an opportunity for similar gains is fast approaching.
Let's start at the beginning though. Six years ago no one - and I mean no one - wanted to buy steel stocks.
The industry was reeling. The Chinese were making heavy inroads into the U.S. steel market. They were able to deliver the same product as U.S. steelmakers at a much lower cost. Even some pretty steep protective tariffs enacted the year before weren't able to save the industry.
It was ugly and it looked like the domestic steel industry was dead. A few innovative companies, however, weren't about to go under without a fight.
When their backs were against the wall, it didn't take long for companies like Nucor (NYSE:NUE) and U.S. Steel (NYSE:X) to figure out a way to compete in the global steel industry. They did it by changing from giant mega-mills to much more flexible (and profitable) mini-mills.
They innovated their way to success. And when the crisis did pass, they were one of the few left standing. As a result, they had an even bigger share of the domestic steel market than they did before. And investors who were able to spot the success of these new business models were able to make as much 10 to 20 times their money, in five or six years time.
Now it's looking like it's happening all over again. This time, it's in the newspaper industry.
Left for Dead
I know what you're thinking...
The newspaper industry is on its last leg.
It pretty much is. The industry has been in steady state of decline ever since the Internet boom really took off. Their subscriber rolls fall every year. The current recession has forced the near-capitulation of the entire industry.
The only thing saving the remaining newspapers is their online divisions. For instance, the New York Times (NYSE:NYT) has one of the most heavily trafficked web sites in the world. And the McClatchy Company (NYSE:MNI), which owns such newspaper industry crown jewels like the Miami Herald and the Sacramento Bee, has stakes in CareerBuilder.com, cars.com, and apartments.com.
To top it all off, newspaper ad sales have been in sharp decline. Earlier today Gannett (NSYE:GCI) reported a 53% decline in earnings due mainly to a 28% decline in print ad sales. Gannett's CEO also expected print revenue to decline even further in the next quarter. And it's not too often CEO's give negative outlooks, especially when Wall Street is looking for any kind news to support the recovery thesis.
But this is just part of a much bigger trend and, if you look beyond the obvious, a high-reward opportunity lies behind it all.
Old World vs. New World
The revenue shortfalls for newspapers were widely expected. In fact, the newspaper stocks have been up sharply because the bad news wasn't as bad as expected.
But here's the problem. Although the print advertising revenues are down, the online advertising revenues are up.
Consider this. McClatchy's print ad revenues were down 32% during the last quarter. That's worse than Gannett's horrendous showing. The thing is though, McClatchy's online ad revenues actually increased.
The divergence between the old world print advertising and new world online advertising just further cemented the trend that newspapers are headed for extinction.
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