Thursday, July 5, 2012

NYT: Avoiding extinction?

The New York Times Co. (NYT) operates a number of media properties, topped by its flagship newspapers The New York Times and The Boston Globe, and ranging to web operations like and  and a venture capital firm, True Ventures.

It also has significant stakes in the Boston Red Sox and the Liverpool, U.K. soccer team, as well as the New England Sports Network and  NASCAR team, Roush Fenwaqy Racing.

On the chart, NYT began a sharp rise on June 26 from $6.71 and on July 3 peaked at $8.00, where it has oscillated for four trading days. The leg up began with a more shallow uptrend beginning May 4 from $5.88.

This near-term rise is one of several attempts to reverse a downward slide that began in January 2010 from $14.87, the post-crash peak.

The question posed by the current near-term uptrend is whether the price can push above the previous lower high of the downtrend, $8.38 on Jan. 23.

The pattern has already suggested the possibility that the trend is ending. The previous swing low at  $5.88 is higher than the prior low, $5.50 in October 2011.

So, Trend Theory 101 as applied to an ongoing downtrend: 1) Lower low followed by a higher low suggests a trend change to up. 2) If followed by a higher high, it confirms a trend change. 3) If followed by a lower high, it suggests either resumption of the downtrend or the beginning of a triangle formation of some sort.

NYT has met the test of case 1), but not yet case 2). It has in fact dithered around the $8 level for four days. The direction it goes when pulling away from this level will determine how the trend should be labelled.

The company's New York Times Media group -- print and web -- produced 67% of revenues in 2011. So the company is fundamentally a newspaper publisher with a website.

And the newspaper industry, as we all know, is in the doldrums. I worked in that industry as a journalist for three decades, giving me a ringside seat on how dinosaurs might have found extinction by failing to evolve to meet changing circumstances.

So I was a bit shocked this morning to see that a major stock-rating service had added NYT to its top-buy list. Buy a dinosaur? I mean, they may be cheap but they make terrible pets.

[The next day, Friday June 6, Zacks Investment Research named NYT as its value stock of the day. Read the Zacks analysis here.]

On the other hand, the Times may be a dinosaur with a future. They've ceased the practice so common in the industry of giving away their journalism,  putting a sophisticated pay wall around their U.S. web site (although their is no Great Pay Wall around their new Chinese website launched last week).

They've made great strides in adapting to the new media environment, but brokerage analysts aren't giving them much credit for that. My enthusiasm index for NYT stands at negative 71%, unchanged from a month earlier.

The index gives points for strong buy recommendations, subtracts points for sells both weak and strong, and ignores buys and holds.

The New York Times has loss on equity of 5% and carries a heavy load of long-term debt amounting to 140% of equity.

Newspapers are like retailers: Their earnings peak in the 4th quarter because of all the Christmas advertising. The company's past three 4th quarter earnings have all been at about the same level per share. Every quarter for the past 11 has been profitable and has shown an upside earnings surprise.

Institutions own 70% of shares, and the price is cheap. It takes only 52 cents in shares to control a dollar in sales.

NYT on average trades 1.5 million shares a day. this supports a good selection of strike prices with adequate open interest and a narrow bid/ask spread.

As is always the case with low-priced stocks -- under $15 or $20 -- I find it hard to match the options to my more complex strategies because a $1 strike price difference represents a fairly large percentage change in the underlying stock. But the options meet my criteria and so can be used for leverage or hedging.

Implied volatility stands at 48% and has been steadily declining since mid-April. Options are pricing in confidence that 68.2% of trades will fall between $6.75 and $8.93 during the next month, for a maximum gain or loss of 14%.

There's very little options activity. Calls are trading at only 15% of their five-day average volume, and puts at only 6%. By contract, the S&P 500 exchange-traded fund SPY is at 85% of five-day average options volume, even during a slow holiday week.

The price is within the five-day fair price range, which encompasses 68.2% of trades. The most common price in that period is $7.85. The range stretches from 47.42 to $7.99.

The New York Times next publishes earnings on July 26.

Decision for my account: I'm passing on the Times for now. A break above $8.38 might prompt me to give it another look, but frankly, I'm just negative on the Times. The financials are  too bad -- the debt level is awful -- and their revenues are too dependent on their flagship newspaper and website for my taste. 

Ultimately, their model is based on the premise that people in the mass will pay handsomely for objectively-written daily general news. I'm not convinced that that is true anymore. 

Anything exclusive that the Times writes will be picked up someplace else or shared on Facebook and will therefore be accessible for free. Any breaking news event will be covered in a thousand other venues, for free.

And the Times brand of journalism is not exciting for most people, frankly. People have a lot of choices among our 21st equivalent of the "birdseed papers", a term used by Ursula Le Guin for the sensationalist mass journalism depiced in one of her novels. A birdseed paper, or website, is a faster, cheaper and more entertaining read than the venerable Gray Lady.

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

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