Hedge Funds Aren’t Overly Bullish on Publishing Stocks

The U.S. newspaper publishing industry has been considered a dying industry in recent years amid fast-declining print readership. Constantly changing consumer preferences and the emergence of innovative technologies has transformed entirely the way news stories are offered by newspaper companies and read by consumers. Indeed, advertising continues to represent a major revenue stream for the industry, so publishing companies have been busy adapting to the fast-changing face of the so-called multi-platform media universe. However, investor worries over the forthcoming death of the publishing industry seem to be greatly exaggerated, as the industry simply experiences an evolution because of the prevalence of new technology that enable readers to consume content on-the-go. Having this in mind, let’s have a look at five publishing stocks favored by the hedge funds followed by Insider Monkey, some of which may represent great winners in the foreseeable future should they successfully adapt to a new order.

Through extensive research, we determined that imitating some of the picks of hedge funds and other institutional investors can help generate market-beating returns over the long run. The key is to focus on the small-cap picks of these investors, since they are usually less followed by the broader market and are less price-efficient. Our backtests that covered the period between 1999 and 2012, showed that following the 15 most popular small-caps among hedge funds can help a retail investor beat the market by an average of 95 basis points per month (see more details here).

#5. Scholastic Corp (NASDAQ:SCHL)

– Investors with long positions as of March 31: 13

– Aggregate value of investors’ holdings as of March 31: $92.33 Million

The hedge fund sentiment towards Scholastic Corp (NASDAQ:SCHL) fell in the first quarter of 2016, as the number of asset managers from our database with long positions in the company declined to 13 from 16 quarter-over-quarter. Correspondingly, the overall value of those long positions shrunk by 21% quarter-on-quarter to $92.33 million. Given that Scholastic shares lost nearly 3% during the quarter, some funds were indeed running away from the company. The publishing house has seen its shares advance by 10% in the past three months, but the stock is up by less than 1% year-to-date. The publisher of the Harry Potter series recorded revenues of $1.16 billion for the nine months that ended February 29, up from $1.15 billion posted for the same period of the prior year. The increase was mainly driven by increased demand for Harry Potter-related titles coupled with strong demand for frontlist titles. Royce & Associates, founded by Chuck Royce, reported ownership of 2.09 million shares of Scholastic Corp (NASDAQ:SCHL) in the latest round of 13Fs.

#4. Gannett Co Inc. (NYSE:GCI)

– Investors with long positions as of March 31: 17

– Aggregate value of investors’ holdings as of March 31: $90.18 Million

The elite corner of the hedge fund industry that is tracked by Insider Monkey was mildly bullish on Gannett Co Inc. (NYSE:GCI) during the March quarter if solely relying on the number of funds with stakes in the company, which increased to 17 from 16 quarter-over-quarter. However, the dollar value of those stakes plunged by nearly 56% quarter-on-quarter to $90.18 million, partially owing to a 6% decline in the share price of the company’s stock. All in all, the bunch of hedge funds tracked by our team, which amassed 5% of Gannett’s outstanding common stock, was not bullish on the owner of USA Today after all. Gannett has been trying to acquire Tribune Publishing Co (NYSE:TPUB), but the publisher of the Los Angeles Times and Chicago Tribute refused the $864 million offer proposed by Gannett. The bidder may abandon efforts to acquire Tribute, after the target’s shareholders re-elected the company’s board nominees at its recent annual meeting. Gannett shares are 4% in the red year-to-date. Howard Guberman’s Gruss Asset Management acquired a new stake of 653,000 shares of Gannett Co Inc. (NYSE:GCI) during the first quarter.

#3. New Media Investment Group Inc. (NYSE:NEWM)

– Investors with long positions as of March 31: 18

– Aggregate value of investors’ holdings as of March 31: $103.62 Million

The number of asset managers from our system with long positions in New Media Investment Group Inc. (NYSE:NEWM) remained unchanged at 18 during the January-to-March period, whereas the aggregate value of those positions fell to $103.62 million from $121.68 million quarter-over-quarter. The 18 money managers invested in the company hoarded up almost 14% of its total number of outstanding shares. The owner of local media assets, whose portfolio includes 620 publications, 521 websites, 460 mobile sites and six yellow page directories, has seen its shares go down by 10% since the beginning of 2016. Just recently, the company acquired Journal Multimedia, a publisher of B2B business publications, a trade magazine, a consumer magazine, digital products, as well as a research and events division. New Media Investment Group’s revenue for the first quarter that ended March 27 rose to $300.1 million $250.6 million due to a series of acquisitions. Leon Cooperman’s Omega Advisors reduced its exposure to New Media Investment Group Inc. (NYSE:NEWM) by 17% during the March quarter to 3.20 million shares.

#2. Time Inc. (NYSE:TIME)

– Investors with long positions as of March 31: 21

– Aggregate value of investors’ holdings as of March 31: $95.56 Million

Time Inc. (NYSE:TIME) received some love from the hedge funds followed by our team during the first three months of 2016, during which the number of money managers with stakes in Time rose to 21 from 19. Correspondingly, the dollar volume of those stakes jumped to $95.56 million from $89.05 million even though Time’s shares were flat for the quarter. Earlier this week, the New York-based magazine publisher confirmed that social networking subsidiary Myspace had suffered a data breach ahead of the Memorial Day weekend, which is among the biggest data breaches in history. However, as Myspace, a once-powerful social networking powerhouse, most likely generates only a small portion of Time’s revenues, the data breach isn’t likely to hurt the company’s top-line figure at all. Time’s total revenues for the first three months of 2016 were $690 million, up from $680 million recorded a year ago. The increase was mainly attributable to a 23% increase in digital advertising revenues, mainly to due to the acquisition of Viant Technologies in early March. Billionaire Jim Simons’ Renaissance Technologies added a 1.21 million-share position in Time Inc. (NYSE:TIME) to its pool of holdings during the first quarter.

#1. New York Times Co (NYSE:NYT)

– Investors with long positions as of March 31: 23

– Aggregate value of investors’ holdings as of March 31: $312.65 Million

The smart money sentiment towards New York Times Co (NYSE:NYT) rose during the January-to-March period, with the number of money managers invested in NYT increasing to 23 from 20 quarter-over-quarter. Nevertheless, the value of those managers’ equity investments in NYT fell to $312.65 million from $327.97 million during the quarter. The 23 hedge fund vehicles stockpiled nearly 16% of the company’s outstanding shares. Earlier this week, the New York Times announced the company will be offering voluntary buyout packages to members of the newsroom and several business departments, thus, joining the group of media organizations that have been laying-off employees and restructuring their newsrooms lately. The publisher said in a memo to employees that the buyouts were part of the company’s goal to double digital revenue by 2020, which forces the publication to build a more digitally-focused newsroom. NYT shares have plunged by 10% since the start of the year. Irving Kahn’s Kahn Brothers has 3.89 million shares of New York Times Co (NYSE:NYT) among its pool of holdings as of the end of the March quarter.

Disclosure: None