Abitibi Consolidated: A Peter Lynch Play?

Some market-beating investors have recently taken positions in the downtrodden shares of Abitibi Consolidated (ABY), the globally dominant newsprint producer struggling with declines in newspaper readership and industry overcapacity. The luminaries include Marty Whitman of Third Avenue Management (17% annual return since 1992) and the Contra The Heard guys (who report a 26% annual return since 1996).

Whitman sees a Peter Lynch play, i.e. a company in a lousy industry that can pick up market share as others exit. Its debt is high but getting paid down -- from $5 billion to $3.7 billion (C$) over the past two years. Book value is nearly double the share price.

The dividend was suspended a little while ago. This would be a good signal according to a recent study by Thomson Financial: it found that S&P 500 companies cutting their dividends experienced an average 27% gain in stock prices two years afterward.