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Dear Mr. Berko: I sold my Gannett Co. stock at $27 even though your recent column about that company was positive. I worked for Tribune Co., which declared bankruptcy in December 2012, for 37 years. My work allowed me to know, on a personal basis, lots of people who worked at its many papers, as well as editors and staff at non-Tribune papers around the country. So I’m surprised that you would recommend Gannett – or any newspaper stock, for that matter. Over the past 20 years, I’ve watched the performance and quality of this product deteriorate like an old car with too many miles. This is a dead industry. It’s going the way of film, pay phones, book publishing, corner drugstores, record labels, automobile seat covers and the incandescent light bulb.

S.R.

Chicago

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Dear S.R.: You sound angry, as if you had a run-in with Sam “Zany” Zell, the Chicago billionaire known as a “distressed-asset king.” This guy is the fruitcake whose foul language offended employees at Tribune, which he bought for $8 billion in 2009 (ignominiously failing to fix it), and who then cavalierly bankrupted the company. Zell refused to believe that changing the label on a bottle of wine only improves the taste for fools, but his ego marched in the way.

Few sectors have performed worse in the past dozen years than the iconic daily paper. The Internet has slaughtered newspaper advertising revenues because the number of websites has increased significantly faster than the slowing growth in advertising dollars. As a result, advertising rates (except for the “Stupor” Bowl) have been falling for nearly a decade. Newspaper advertising revenues in the past 10 years have been crashing, from a total of $52 billion in 2003 to $23 billion last year. But though the pain is broad and deep, I believe that the newspaper industry, Kodak, the railroads, natural gas, etc., can return to profitability and become strong assets again. Be mindful of this axiom: The best time to buy a stock is when it’s been sullied, bruised and bloodied and no one wants to own it.

Publishers have been changing their business models and embracing new technologies as they struggle with the secular decline in their mainstay business. These initiatives are paying off. Newspapers are placing more emphasis on their digital and interactive components and relearning how to monetize their articles and content. They’re improving their bottom lines at the expense of their employees by reducing staff, lowering compensation, limiting retirement benefits and consolidating printing facilities. Many are going “hybrid” (print and digital) to boost subscriptions and have launched mobile offerings for readers on the go. And because things turn out best for those people who make the best of the way things turn out, I think the following issues have a good chance of significant gains over the coming few years.

McClatchy Co. (MNI-$5.92), founded in 1860, owns The Charlotte Observer, The Miami Herald, The Kansas City Star, The Sacramento Bee, 26 other dailies and a good portfolio of digital assets. McClatchy generates $1.3 billion in revenues and has a $390 million market cap. Its balance sheet is a disaster; its book value is 92 cents a share. But McClatchy could earn 50 cents a share this year.

Lee Enterprises Inc. (LEE-$5.01), founded in 1890, is one of the most respected names in the business. It owns 50 dailies and 302 weeklies in the West and Midwest. Lee also provides digital infrastructure and publishing for more than 1,500 daily and weekly papers. Revenues are $678 million. Book value is a negative $3.65. The balance sheet is dicey, but Lee could earn 30 cents a share this year.

And A.H. Belo Corp. (AHC-$12.51), founded in 1842, has $772 million in revenues, a $175 million market cap and no debt. Its two big dailies are The Dallas Morning News and The Providence Journal, and it publishes hosts of Spanish-language papers. A.H. Belo offers digital marketing solutions, and runs a printing, distribution and direct mail business. It could earn 19 cents a share this year.

Don’t cherry-pick or bottom-fish; just buy all three and sit tight.

Address your financial questions to Malcolm Berko, c/o The Daily Journal of Commerce, P.O. Box 8303, Largo, FL 33775, or email him at [email protected]. © 2014 Creators.com