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Stock Strategist Industry Reports

Newspaper Stocks Are Value Traps

By shifting their operations online, newspapers continue to trade dollars for pennies.

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The paroxysmal changes rattling the beleaguered newspaper industry have coincided with unprecedented declines in publishing companies' stock prices. The decimation has affected newspaper publishers regardless of size, geography, or prestige of their mastheads. Driving this decline is a structural shift of epochal dimensions that continues to reshape the way we generate, compile, disseminate, and consume news and information, manifested largely by the rise of the Internet and the proliferation of alternative digital media choices.

The effects of this shift are chipping away at the once-stalwart business model by which newspapers operated for decades. A cyclical downturn in business ad spending--driven by a credit crunch and persistent consumer spending retrenchment--has accelerated the revenue declines at newspapers. The suffering this confluence of factors creates for newspapers is magnified by the suffocating effects of many publishers' debt-laden balance sheets, which leave them with diminished financial flexibility to navigate the treacherous industry environment, and little margin for error to manage a worst-case scenario.

Tom Corbett does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.