New Gannett Co Inc (GCI)

[MWM]

Call me crazy
I might be completely off my rocker with this one, but Gannett could be an interesting opportunity for adventurous investors seeking a contrarian bonanza.

Earlier this year, my Foolish colleague John Rosevear challenged investors to ignore the noise around General Motors (NYSE: GM) and take a closer look at Ford (NYSE: F). He suggested that a best-of-breed company in an otherwise pitiful industry can produce a compelling risk-reward situation. Ford shares tripled in value soon afterwards, so he was surely on to something.

Gannett is a similar story. The newspaper industry is a sad, sad, relic reminiscent of a walking dead man. Yet Gannett's relatively diverse business model and niche spot with USA Today, still in demand at hotels, has left it profitable. Furthermore, its debt, although frighteningly heavy, appears to be stable. As CAPS member HeloJim writes:

The bad news is out. The credit rating has been downgraded to junk territory, the dividend has been cut, we know the industry has been in decline, [ad] revenues have been killed, the internet has stolen customers and the company took huge write-downs of goodwill in 2008. Everyone sees that.

With all that, this company is still profitable. Their debt structure is stable, competitors are teetering on the brink and cost reduction efforts are improving margins. As the recession ends and add revenues start returning, their profits will look very attractive. … Their TV stations have held up fine during the recession and they've done a good job developing their online business. Management has also prioritized debt retirement so don't expect the dividend to return, but as debt is reduced this stock will get noticed.

The upside here is that shares currently trade at just over three times forward earnings. If management can successfully finagle its debt and ride out the recession, investors are looking at an insanely undervalued stock. If not, well, all bets are off. This one ain't for the wusses.
http://www.fool.com/investing/general/2009/05/22/3-ridiculously-cheap-high-quality-companies.aspx