3 Newspaper Stocks With Bulls-Eyes on Their Backs

Chances are, your neighborhood paperboy has quite a few less customers on his route these days. Readers are increasingly gravitating toward a virtual method of delivery, accessing their news via their computers and mobile devices.

The Internet's rise to dominance as the de rigeur mode of communication has hit the newspaper industry -- hard. While print circulation has been on a relatively slow, but painful, decline, print ad revenues have dropped off at crushing speed, with the web offering a more efficient and effective climate for advertisers.

In order to keep their businesses afloat, newspapers have done their best to change with the digital times by making their content available online. Some even charge to view their sites, a strategy that's worked with varying degrees of success, and helps recoup some of the paper losses.

And in order to reach mobile and tablet users, companies have created downloadable news apps. But even while maximizing readership, these apps are simultaneously killing the industry -- at least according to News Corp's James Murdoch, son of media mogul Rupert.

The younger Murdoch accuses apps for iPads and other tablet devices of "cannibalizing" print sales, making their readers less likely to go out and buy a copy of the paper than those who just visit the website.

So, should we expect a turnaround in the flailing industry? Let's see what Warren Buffett had to say. In 2009, he proclaimed that "for most newspapers in the United States, we would not buy them at any price ... They have the possibility of going to just unending losses."

The price tag of all this diversification into digital channels has been steep, and not very cost effective -- newspapers have racked up quite a bit of debt in their quest for 21st century relevance.

Add to this declining profitability, and you have a model for a failing business. Look at the Chicago Tribune, which just filed for bankruptcy; or the New York Times, forced to take out a high-interest loan from a fabulously wealthy individual, and they still haven't managed to dig themselves out of the hole they created.

And those were the ones that didn't go under -- in 2009 alone, over 100 U.S. newspapers folded.

Things are bleak all-around for the industry -- but which of the struggling newspaper stocks may be ticking time bombs? Having a look at the options market is a good way to see if the writing's on the wall for these companies. If a stock has a large number of put options relative to call options, it's taken to indicate generally bearish sentiment in the options market. (Click here to access free, interactive tools to analyze these ideas.)

Here is a list of newspaper stocks that options traders are bearish on -- see if you agree. Options data sourced from Schaeffer's.

Interactive Chart: Click on the time line to evaluate performance over different time frames.

Kapitall's Eben Esterhuizen and Alicia Sellitti do not own shares of any companies mentioned.