Goldman Cautious on Newspaper Stocks

By: Jennifer Saba Goldman Sachs issued a report today warning investors to take a cautious approach to newspaper stocks for this year. The investment firm rated the sector "underweight" pending "evidence of improved trends in ad revenue growth or valuations 10%-15% below current levels."

The firm forecasts 4.6% ad growth for newspapers in 2005, due mainly to an ad-rate increase somewhere in the ballpark of 3% to 5%. However, it's expected that publishers will run up against resistance with the hike given last year's circulation scandals. The firm hedges its estimate somewhat: "There is more risk to the downside than upside in terms of possible revisions."

The national ad category remains a source of concern given its unstable nature in recent quarters. Telecom, travel, and entertainment fall under this column -- sectors that are wobbly. Goldman Sachs estimates that national will grow 5%, but the forecast assumes "improved auto spending, a stabilization of the movie category, and a short-term benefit in telecom spending from increased promotional and branding activity."

On the upside, the newspaper sector is expected to outperform both TV and radio in terms of ad revenue growth.

In other news, Merrill Lynch issued a report today that said newspaper stocks slightly outperformed the S&P 500 this week, declining only 2% while the S&P dropped 2.4%.