After being battered last year, publishing stocks made a comeback this year and have been darlings of markets lately. As such, the recent correction seen in New Media Investment Group Inc. (NYSE: NEWM) and The McClatchy Company (NYSE: MNI) comes as a great opportunity to make fresh long positions. Here is a closer look if the stocks are placed favorably from a risk reward point of view.
Share prices of New Media Investment Group Inc. have corrected in excess of 11.5 percent over the last month. This New York based publisher has an extensive portfolio comprising of 78 daily newspapers, 235 weekly newspapers, 344 locally focused websites and 313 mobile sites. Not all of these publications are doing well as evident from a 2.8 percent decline in revenues to $142 million for the latest quarter ended March 2014. Net loss for the quarter was $6.7 million, but it was a big improvement from a loss of $17.5 million in the same period a year ago.
The stock got listed in February only and analysts at R. F. Lafferty and Compass Point recently started coverage on the stock with favorable recommendations and target prices in excess of $18 per share. The target implies 33 percent upside from current levels of $13.5. At a forward price earnings multiple of 8.5, New Media Investment Group is a reasonably valued media asset which has a low debt equity ratio of 0.5.
Investors also started liking The McClatchy Company which is up nearly 60 percent since January, despite an 18 percent decline during last month. The company has a broad portfolio of daily newspapers catering to metropolitan areas as well as small communities. Quite ironically, the company has been slow to respond to the digital revolution and as such, its revenue performance for the last four straight years has been declining. However, it has finally woken up to the opportunity and currently has stakes in several premium digital assets including CareerBuilder.com, Cars.com, and HomeFinder.com.
The McClatchy Company's first quarter performance was not great as its ad revenue continued to fall, but the silver lining is the growing contribution from digital platforms. This was the reason behind the stock's rather abnormal rise earlier this year despite the losses. The company has a pile of debt on its books and thus, it is not for everyone. For the investors willing to participate in this high risk-high reward game, the stock is currently available at a discounted level.