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Now's Not the Time for Contarian Wagers on New York Times Co.


There are good reasons to believe it has further to fall.

Contrarian investors will tell you that it's good to buy when everybody else is selling. Just wait, they say, until the market is really down on a company and then scoop up its stock.

Some brave investors will be slapping their money down on the New York Times Company (NYT). The stock fell another 8% yesterday and is now down a whopping 30% in the past month. That kind of drop might get some investors' attention, but they should be careful. Even after its steep descent, stock is still a very risky place to put your money. There are good reasons to think Times Co. has further to fall.

The New York Times Co. may have delivered some better-than-expected fourth-quarter figures yesterday. But, "better than expected" should be safely interpreted as "not as horrible as you might have feared, but pretty dismal nonetheless."

Looking at the quarterly report, you can't miss the columns of double-digit negative growth numbers. Quarterly advertising-generated revenues, a closely watched metric in the printing and publishing industry, fell by a whopping 14.7% year-over-year in December, while total revenue was down 10.1% year-over-year.

The New York Times Media Group's revenue shrunk 12%, while revenue at the New England Media Group, which includes the Boston Globe and the Boston Red Sox baseball team, plunged 16% and its regional newspapers group sales dropped 22%. A ray of light came from a pick-up in Internet ad revenue, which climbed 10.6% after plunging for most of the year.

Of course, this is a company that's only pulled itself from the brink of bankruptcy. Cost-cutting measures over the past year -- including a termination of its dividend, pawning-off of assets and rounds of staff layoffs -- freed up cash to pare down debt and keep creditors at bay while helping push the stock price up from its $3.50 low. Indeed, it was reductions in operating expenditures that allowed profits to surge ahead of analysts' fourth-quarter earnings estimates.

The ability to cut expenditures and pay its interest obligations, however, hardly gives the Times a solid growth outlook. As long revenues are on a downward trajectory, it's hard to see how earnings will keep rising when opportunities for cost cuts run out. After all, the Times can't fire its way to real growth indefinitely.

Getting things moving again at the Times requires a clear growth strategy -- something that's sorely lacking in the company's recent announcements. After shuffling its feet on the issue, the company has finally decided to charge for online access. But while a new metering model to charge readers is on the way, details on how it will help the company make more money are, at best, meager.

With little to go on, it's hard to get excited about the stock's $10.60 price tag. Even after getting knocked down from $14.70, Times shares fetch more about 19 times 2010 earnings -- far too high a price for a company unable come up with a convincing growth path.

To put its share value into perspective, consider that market darlings Google (GOOG) and Apple (AAPL) consistently deliver double-digit revenue and earnings growth rates, yet their shares trade at 17-20 times. Meanwhile another struggling newspaper group, Gannett Co. (GCI) goes for about nine times earnings -- about half that of Times Co. I'd say a strong turnaround from the Times Co. -- as uncertain as that may be -- is already priced in its stock.

Some folks may be betting that the Times Co. will get takeover bid this year. The stake-building in the Times Co. by Mexican billionaire Carlos Slim last year might lead to an acquisition of the family-run company, if not by Mr. Slim, then by another party he can coax in to making a play. Even so, a smart deal-maker will probably wait for the shares' price to settle down closer to fair value before swooping in.

Betting on the Times Co. remains a long shot. Taking into consideration its hazy growth outlook and its hefty trading multiple, it's hard to be optimistic. Now is not the time to make a contrarian wager.
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