2010 Surprise: Newspaper Stocks Q4 Surge

Newspaper publishers face huge challenges—the decline in subscriptions and ad revenue, and the flight of readers to the web. So it comes as a surprise that newspaper stocks have led media in the fourth quarter, rising 22 percent. Many of these stocks are still off for the year, but they've seen a pretty remarkable rebound in the past quarter.

James McHuff

The New York Times is off 17 percent for the past 12 months, but up around 29 percent for the year.

The Washington Post is up about 14 percent in the past quarter, bringing the stock down just 3.5 percent in the past year.

Gannet is pretty much flat for the year thanks to a rebound in the fourth quarter, sending the stock more than 28 percent higher.

What's behind the surge? Evercore Partners media analyst Douglas Arthur attributes the group's strong performance to signs that print advertising is bottoming, which sets the stage for positive growth in 2011. And Arthur doesn't just see growth in traditional newspaper ads—he's optimistic about the iPad's impact on the industry.

News Corpis set to launch its tablet-only publication, "The Daily,"early in the new year, which will prove a good test of the device's potential. And the New York Times will put up a new subscription paywall sometime in the first quarter, which should provide a key new source of revenue.

Some of the growth may be cyclical—Arthur points to rotation into some of the groups that lagged in the first three quarter of the year, and the fact that the fourth quarter is typically strong.

But don't get too excited—this sector is hardly out of the woods just yet. December is a crucial month for ad sales—think about those glossy retail ads. And in December the New York Time's "linage" (a measure of ad space) is down 31 percent and the Wall Street Journal's is down 5 percent according to UBS.

We'll have a better sense of what that means when these companies report earnings. And we'll see whether the iPad can really boost digital revenues, which are really the future of these companies.

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