1-Star Stocks Poised to Plunge: McClatchy?

Based on the aggregated intelligence of 145,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, newspaper publisher McClatchy (NYSE: MNI  ) has received the dreaded one-star ranking.

With that in mind, let's take a closer look at McClatchy's business and see what CAPS investors are saying about the stock right now.

McClatchy facts

Headquarters (Founded)

Sacramento, Calif. (1860)

Market Cap

$434.2 million

Industry

Publishing

Trailing-12-Month Revenue

$1.55 billion

Management

CEO Gary Pruitt (since 1996)
CFO Patrick Talamantes (since 2001)

Return on Capital (Average, Past 3 Years)

5.6%

Cash/Debt

$4.2 million / $1.9 billion

1-Year Return

250%

Competitors

Gannett (NYSE: GCI  )
Lee Enterprises (NYSE: LEE  )

CAPS Members Bearish on MNI Also Bearish on

New York Times (NYSE: NYT  )
Dollar Thrifty Automotive (NYSE: DTG  )

CAPS Members Bullish on MNI Also Bullish on

Citigroup (NYSE: C  )
Johnson & Johnson (NYSE: JNJ  )

Sources: Capital IQ (a division of Standard & Poor's) and Motley Fool CAPS.

On CAPS, 67% of the 109 All-Star members who have rated McClatchy believe the stock will underperform the S&P 500 going forward. These bears include deMole and UltraLong, both of whom are ranked in the top 2% of our community.

Just yesterday, deMole summed up McClatchy with a simple bearish description: "'Buggy whip' business with huge debt burden."

In a pitch from last week, UltraLong delivered a more detailed post against the stock:

McClatchy is a newspaper company that owns and operates 30 daily newspapers and roughly 50 non-local publications. … [Q3 figures] showed just how deep they must go into cost-cutting to meet their figures. Although they reported a 28 cent quarterly profit, they saw Q3 revenues dip 28% and this is a trend that should continue going forward. Really, how many more jobs need to be cut? … Couple that with 1.93 billion dollars in both short and long-term debts and even with profitability they'll never climb out of this mess they're in.

What do you think about McClatchy, or any other stock for that matter? If you want to retire rich, you need to protect your portfolio from any undue risk. Staying away from dangerous stocks is crucial to securing your financial future, and on Motley Fool CAPS, thousands of investors are working every day to flag them. CAPS is 100% free, so get started!  

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Johnson & Johnson is a Motley Fool Income Investor pick. The Fool's disclosure policy always gets a perfect score.


Read/Post Comments (4) | Recommend This Article (4)

Comments from our Foolish Readers

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  • Report this Comment On January 12, 2010, at 1:59 PM, Fool wrote:

    All McClatchy newspapers make a profit, but the question is how much? Readers can easily see how the newspapers are thinner and there's less staff content because of the cuts. CEO Gary Pruitt promised more cuts for 2010, but what kind of product will be left to sell?

  • Report this Comment On January 12, 2010, at 8:50 PM, gerccn wrote:

    Motley Fool has been down on newspaper publishing stocks for as long as I can remember. So I suppose it no surprise that its "all star" panel of followers share the same view.

    Here are a few positive things to consider about McClatchy in particular, and publishing stocks in general:

    First, after a dismal advertising climate throughout '09, all indications from those who project advertising spending are that newspaper ad declines will begin to flatten out and then go positive in '2010. Some categories, like classified Real Estate, will probably remain sluggish for much of the year. Others, like Automotive, Recruitment, local Retail and National, should all turn positive.

    With the deep cost cuts McClatchy has put in place over the past several years, it won't take much of an advertising upturn to show substantial bottom line improvement. Bear in mind that all of McClatchy's 30 newspapers are already profitable--and that's coming off an absolutely horrible advertising year.

    Also, a recent article said that Fitch is considering raising McClatchy's credit rating because of the possibility that it will be able restructure its debt.

    As an aside, if that happens, CEO Gary Pruitt and his management team should be nominated for sainthood.

    Given what they have led the company through over the past several years, weathering the steepest economic downturn in decades, and to have done it without having to take a "packaged" bankruptcy, in an industry that has been littered with them, is nothing short of amazing.

    The shareholders will owe them a tremendous debt, for they will have done nothing less than save the company.

    Second, to the poster above who glibly dismisses McClatchy as being in the "buggy whip business" that's a naive statement. Only the current distribution method of newspapers is outmoded--certainly not their real asset, the content they produce.

    Yes, running presses and loading papers onto trucks in the dark of night is "buggy whip." But as for content, newspapers still generate by far the majority of news content available from all sources.

    While the Internet ushered in a new distribution channel, what has been missing are viable products for viewing newspaper online content. Products that have portability and are well designed for reading. Cell phones and smart phones have portability, but aren't well suited to reading longish pieces. Desktops are obviously tethered. And while laptops are pretty good, they aren't ideal because of their bulkiness. And, yes, Amazon's two Kindles are such a product, but many readers would argue that their black & white limitation makes them not as good as some of today's multi-colored printed newspapers.

    However, the vast number of new e reader devices currently flooding the market could bode extremely well for newspapers. For the first time since Amazon introduced its Kindle, there will be an entire new wave of products specifically dedicated to increasing the ease and enjoyment of reading newspapers, magazines and books.

    And to those who say, "yeah, but even if that happens, what about the fact that newspapers haven't been able to figure out how to charge for online content?" Well, newspapers long ago figured out how to charge for content. It's called subscription revenue, and every print subscriber already pays it.

    As e reading devices and online readers become more prevalent, and print readers decline, it won't be that big a challenge to gradually bundle the remaining print subscriptions with online, then over time give the full content to those who pay, and a substantially scaled down version to those online readers who don't.

    So to those arguing that investors should bet against Pruitt and McClatchy, I say you've already missed your best chance at being right. That would have been last year.

  • Report this Comment On January 13, 2010, at 9:23 AM, jaygolfs wrote:

    The comment about Pruitt being nominated for sainthood cracked me up. Are you kidding me? The guy buries his company in debt, buying Knight Ridder at the exact top of the market at prices 90% than carried on the books now?

    This ultra-high debt load forces the company to near bankruptcy, making it necessary to fire more than 5,000 people to avoid going bust. The stock nearly got delisted and is still in long-term danger of going out of business.

    Please, let's keep the sainthood nomination comments in check. In order to be a saint you have to do good things, which Pruitt hasn't done.He's very lucky to have his job, and the only reason he has it is if the family fired him then they'd lose the little control they still have.

  • Report this Comment On January 13, 2010, at 1:24 PM, gerccn wrote:

    It's great to have 20-20 hindsight.

    At the time of the KR acquisition, nobody, absolutely nobody, had a clue about the degree to which the economy was about to tank, or that the Internet was about to eviserate what remained of advertising revenue after the economy got through with it.

    That all became painfully, increasingly apparent in the ensuing 18 to 36 months after the acquisition.

    However at the time McClatchy acquired Knight Ridder, the acquisition made perfect sense. Forward projected cash flows at that time for both companies, in fact, made it a no brainer.

    As we now know, everything was about to change.

    My comment regarding sainthood was based on what Pruitt has done since then to save the company. His efforts have been nothing short of incredible, and it now begins to appear that he just may pull it off.

    Meanwhile, take a look at the number of newspaper companies that did not: Tribune, Minneapolis Star, Philly, Freedom, the list goes on and on.

    In business, there's what happens that you can't possibly anticipate, and then there's what you do about it. Pruitt gets the highest possible marks in my estimation for the latter.

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