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NEWSPAPER STOCKS SWING UP 4.1 PCT. AFTER DECISION 'Halo effect' of high court ruling on TV gooses newspaper shares.

In an illustration of what Wall Street calls a "halo effect," following last week's U.S. Supreme Court ruling that an Internet service that recorded over-the-air television signals was violating broadcasters' copyrights, the NewsInc. Index -- which tracks the fortunes of the eight publicly traded businesses that focus on daily newspapers -- hit a six-year high of almost $747, a 4.1-percent week-over-week increase.

And while newspaper businesses that do have local TV operations -- including Gannett Co. Inc., Journal Communications Inc. and The E.W. Scripps Co. -- certainly led the pack in gains, even pure-play newspaper businesses such as A.H. Belo Corp., Lee Enterprises Inc., The McClatchy Co. and The New York Times Co., saw gains. By comparison, the S&P 500 last week was up only one-tenth of a percent, closing on Friday at $1960.96.

The high court's Wednesday ruling against Aereo Inc. of New York City, certainly bolstered television stocks such as Sinclair Broadcasting Group Inc. (closed up 15 percent for last week), Nexstar Broadcasting Group (also up 15 percent), Gray Television Inc. (up 13.4 percent) and Media General Inc. (up almost 11 percent).

But even Belo -- the Dallas-based publisher that after it soon divests itself of its Rhode Island paper, the Providence Journal, will only be the Dallas Morning News -- saw its share price go up 4.4 percent last week, to $12. Belo's percent-increase was only slightly different than Gannett, the McLean, Va. multimedia giant that is the fourth-largest local TV broadcaster and largest owner of dailies by circulation, which went up 4-1/2 percent, closing on Friday at $30.67.

The biggest share price percentage gain last week among multimedia companies was at Journal Communications of Milwaukee (publisher of that city's Journal Sentinel and owner of 12 TV stations in nine markets), which saw its stock price increase 8.4 percent last week, closing on Friday at $8.74.

The next-largest gain was at Cincinnati's Scripps, where shares went up 7.8 percent for the week, with Friday's close at $20.60. Scripps owns 21 stations and 13 newspapers; it increased its TV footprint earlier this year, buying stations from Granite Broadcasting Corp. in Detroit and Buffalo, N.Y. (that deal closed earlier this month).

While the gains at Lee, McClatchy and The Times Co. were negligible (Lee up 2.1 percent, McClatchy up 1-1/2 percent and Times up 1.6 percent), they were gains in an era of unrelenting bad news about newspapers.

Another factor that may have driven newspaper share price were a series of stock recommendations last week that included newspaper and newspaper-related businesses. Jefferies Group LLC began coverage of a number of media companies, following its hiring in May of analyst John Janedis, who has followed publishers and related businesses in a 15-year career while with UBS Securities, Wells Fargo, Wachovia, Bank of America and Morgan Stanley.

Janedis started coverage on Gannett and News Corp. with "buy" recommendations, though he gave The Times Co. a "hold." He set a target for News at $22 and The Times Co. at $15.

Citigroup Inc. also began Gannett coverage last week, also with a "buy" rating and a target of $24. Earlier in the month Zacks had reaffirmed its Gannett recommendation as a "hold," with an $18 target (saying the company is in "overbought territory"). On Friday Benjamin Clark of issued a report including Gannett with four other companies that have low price/earnings ratios, saying Gannett "appears to be significantly undervalued."

The site issued a Thursday report that listed Belo and Lee as two companies that are "better positioned than their generalist peers to survive and even thrive in the new media landscape."

Said the Fool, "According to its internal estimates, Lee Enterprises' cumulative top line [gross revenue] decline between 2007 and 2012 of 33 percent is among the lowest of its listed newspaper peers."

Though not the biggest one-week shift of the Index in history (far from it actually -- there have been 11 bigger and one loss greater in the last two years alone), this change was all the more remarkable because of the sluggishness of the broader market and the apparent mix ups of company names. How else can one explain the Belo gain except that some stock buyers thought they were acquiring TV company shares (Belo Corp. no longer exists, as it was merged into Gannett late last year) rather than those of a newspaper publisher?
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Date:Jun 30, 2014
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