Let's go black and white and red all over this week.

If you follow this column, you know that I rip into a publicly traded company every week. I'm not heaving softballs here. I'm picking apart a stock that I think is overpriced, so I'm not holding back.

I'm not a rebel without a cause, though. I don't knock a stock unless I have three perfectly capable replacements for your portfolio.

Who gets tossed out this week? Come on down, Gannett (NYSE:GCI).

Stop the press
As far as newspapers go, Gannett is a relative winner. It's still profitable. It's paying reasonable -- and sustainable -- 2% dividend. And its flagship USA TODAY paper should even benefit from the near-term implosion of local newspapers, as print buffs seek out Gannett's colorful daily as a substitute.

Gannett also deserves props for not having its head in the sand when it comes to the Internet revolution. It's a major investor in sites such as CareerBuilder.com and Cars.com, and it has launched its own community sites for everything from fantasy football to pets to stay-at-home moms. Unfortunately, digital revenue still accounts for just 10% of the whole enchilada at Gannett.

Gannett watches over 84 daily newspapers, including USA Today. It also has stakes in television stations and magazines, and it's one of the largest newspaper companies in the United Kingdom.

Right now, though, Gannett's newspaper business is ugly. Total publishing revenue fell 26% in its latest quarter. Ad revenue took a deeper 32% hit. An economic turnaround will help, but things will never get back to the way they used to be. Folks are learning to get by without reading yesterday's news in the morning paper. Gannett's classified ads have suffered a 45% hit, as a lot of folks are moving their ads to cheaper -- and free -- listing sites.

Newspapers were once an effective way to deliver news and advertiser leads, but the Internet has changed the landscape. It's telling that usatoday.com receives 5.5 million visitors, while the actual newspaper's circulation is just 2.3 million.

Yet even if the Web is the future, the Web also means competing against nimble hobbyist bloggers, Twitter, and social-networking sites. On a pro forma basis, digital revenue at Gannett fell by 19% over the past year.

The market doesn't mind. The stock has more than quadrupled since bottoming out at $1.85 in March. That was an outlandish price -- less than the pre-charge $3.40 a share it earned last year -- but analysts see Gannett earning just $1.45 a share this year and in 2010 as well.

Gannett has done a great job of trimming costs to remain afloat and profitable, but it can't hack away forever. It has been able to push out maturities on the money it owes, but the $3.5 billion debt monster is going to get uglier as the fundamentals continue to contract.

Gannett was too cheap in March, but it's too expensive now. 

Good news
As I do every week, I don't talk down a stock unless I have three alternatives that I believe will outperform the company getting the heave-ho. Let's go over the three fill-ins.

  • Google (NASDAQ:GOOG): The push for online news dissemination will only give the world's leader in online advertising more pages to cover with ads. It's no surprise that while Gannett's pro forma digital revenue is in retreat -- and smaller portals such as Yahoo! (NASDAQ:YHOO) and Time Warner's (NYSE:TWX) AOL are backpedaling -- Google has delivered margin-widening profits on reasonable revenue growth.
  • Amazon.com (NASDAQ:AMZN): At $11.99 a month, USA TODAY is one of the pricier Kindle newspapers. The open competition will probably drive prices lower and, but Amazon will be the ultimate winner on that front. It's true that the leading online retailer isn't alone with its 3G wireless e-book reader -- Sony (NYSE:SNE) finally introduced a worthy challenger this week -- but there's plenty of room for more than one virtual newsstand.
  • 51job (NASDAQ:JOBS): If you're still itching to invest in print publications, it helps if you turn your attention overseas. 51job publishes weekly job listings through nearly two dozen editions in China. The world's most populous nation isn't immune to the global recessionary woes, as 51job suffered a 12% dip in revenue in its latest quarter. However, earnings did inch up marginally. And more crucially, 51job isn't some debt-laden stateside publisher. Nearly half of its market cap is supported by $163 million in cash and short-term investments on its debt-free balance sheet. Growth should resume by year's end, with the stock trading for just 19 times next year's projected profitability. China's booming economy is going to have a lot of jobs to fill, and 51job is in the perfect place to cash in.

Sorry, Gannett. I respect the effort, but you're yesterday's news.

Do you like Rick's substitutions? Would you rather stick it out with the tossed company? Are there other stocks Rick should look at in future editions of this column? Let him have it in the comment box below.

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