Wall Street (Mostly) Stops Betting Against Newspaper Stocks

By: Mark Fitzgerald Thursday's stock market drop over fears that Wall Street's rally is running way ahead of the real economy took the newspaper sector down with it. So are newspaper stocks being set up for another crash?

If the behavior of short-sellers is any indicator, newspaper stocks look fairly healthy -- keeping in mind two factors.

First, the stocks continue to trade far below historic highs. Shares of The McClatchy Co. (NYSE: MNI), for instance, are up 114% over the 52-week period even with Wednesday's dip of 3.7% to $3.11. But that share price is a long way down from the $34 or so MNI fetched just two years ago - let alone the $70-plus a share of five years ago.

Second, short-sellers, those who profit from falling share prices, turned out to be spectacularly wrong about the sector at the beginning of this summer. Indeed, their need to cover their positions probably fueled some of the newspaper rally.

That said, the shorts are not returning in any significant numbers.

Last May, for instance, fully 26.6% of Gannett Co. (NYSE: GCI) outstanding shares were held by short-sellers. By September that had fallen to 18.5% and as of Thursday it was down even more, to 14.8%.

That's true for nearly all the Big Board-traded newspaper stocks. Back in May, 18% of The New York Times Co. (NYSE: NYT) shares were in the hands of short-sellers. That's now down to 12.4%.

Shorts look to be tempted by McClatchy, with so-called "short interest" rising to 13.5% from 8.3% in September. But that's a long way from the 27.3% level of last May.

By Wall Street's rule of thumb a short interest of more than 5% of a stock's float indicates a bearish sentiment, so even as short interest in newspapers falls, the market is clearly skeptical about the investment.

The Street does appear sold on at least two stocks as long-term prospects. The short interest in The Washington Post Co. (NYSE: WPO) is just 1.3%, and is less than 1% in A.H. Belo Corp. (NYSE: AHC).