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SIVY ON STOCKS from money.com
April 30, 2001

Printing profits

Gannett is best known for publishing USA Today. But the company's local
papers and broadcasting properties make it the perfect play on a comeback
in advertising.

By Michael Sivy

It's too soon to say that the economic slump is over. But it's not too soon
to say that it will be over before long. Friday's surprising report on the
economy showed growth continuing at an annual rate of 2 percent, up from a
low of 1 percent in the fourth quarter of 2000. And while the growth rate
could dip again, the Federal Reserve's most recent interest rate cut pretty
much ensures that the economy will be expanding solidly next year.

To play the potential rebound, most investors have focused on the tech
sector. I too think there are some good tech buys, but the outlook for many
technology issues is complicated by a host of factors, from overcapacity in
the telecommunications industry to the number of bad loans held by lenders.
The simpler way to bet on a potential rebound is with the shares of
consumer and basic manufacturing companies.

Chief among these businesses are those that depend on advertising. The
collapse of the free-spending dot-coms at the same time that the broad
economy was turning down created an advertising climate that has been
little short of disastrous. And even a moderate economic comeback could
provide a huge lift to those media companies that depend most on advertising.

Gannett [GCI], best known for publishing USA Today, is a perfect example.
Although the heavily formatted broadsheet has been derided as "McPaper,"
the journalistic equivalent of fast food, USA Today has a lot to be proud
of. At 2.3 million, it has the largest circulation of any U.S. daily. The
paper pioneered the use of colorful graphics and squeezes a lot of news in
a compact layout. I usually look at USA Today's business section first
every day, before I turn to the Wall Street Journal or the New York Times.

But Gannett's real upside lies in its other less-conspicuous properties.
The company runs nearly 100 local papers, which are often near-monopoly
outlets in midsize suburban markets. In addition, Gannett has 22 television
stations in 19 markets, scads of non-daily publications and websites, and
15 daily newspapers in the United Kingdom. Altogether, the company is
virtually an index fund for advertising spending.

In 2000, Gannett reported record earnings growth of 15 percent. In the
fourth quarter, the gain was only 11 percent because advertising trends had
already begun to weaken. That downtrend has continued, and for the first
quarter of 2001, profits were actually down 14 percent. The next few
quarters will be tough, but by 2002 earnings should be rising again -- and
media stocks typically discount trends in ad spending as much as a year in
advance. Gannett's stock hit bottom in September at $49 a share, and has
been rallying since then despite weakening earnings.

Longer term, the shares of this well-managed company look quite attractive.
Earnings figure to grow at a compound annual rate of about 13 percent over
the next five years. And at a current price of $64.55, the shares trade at
less than 18 times estimated earnings for the current year. That sounds
like a great format for capital gains.

###

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