New York Times Is A Solid Turnaround Story

| September 22, 2008 | 0 Comments

I’ve got to admit to a little obsession.  Every year Forbes Magazine publishes the Forbes 400.  It’s a listing of the richest people in America.  I love this issue and I’ll read it cover to cover several times over the next few months.

The most recent issue was published earlier this month.  I suggest you pick up a copy and give it a good read.

Why?

Because you never know where a great investment idea’s going to come from.  Let me give you an example.  I recently read about a Billionaire investor who made a very interesting investment.

Before I tell you who he is let me tell you a little bit about him.

First off you won’t find him listed in the Forbes 400 – he’s not a US citizen.  But his business prowess and investment savvy is known the world over.

In the 1980s he looked to buy troubled companies on the cheap.  He’d go in, turn them around, and make buckets of money in the process.  He eventually moved into the communications industry.  That’s when he started building and running a Mexican telephone company.  Eventually he founded a cellular telephone company which became Latin America’s largest.

So he’s good at business.  How’s his investing track record?

He says he follows in the footsteps of Warren Buffett.  That makes him a value investor.  But his investments are a bit different from Buffett’s.

This Billionaire bought a huge stake in Apple Computer in 1997.  Apple’s shares rocketed higher with the launch of the iMac a few months later.  I guess timing is everything!

Other past investments include a big stake (more than 11%) in high-end retailer, Saks.  A major piece of telecom firm, Global Crossing.  And a chunk of deeply discounted WorldCom bonds.  Those bonds made him a $500 million profit a mere three years later.

Not bad if you ask me.

So who is this investing and business genius?

If you guessed Carlos Slim, you’re absolutely right.  His net worth makes him one of the three wealthiest men alive.  Recent estimates place his personal fortune somewhere around $58 billion.

So what investment idea do we get from Mr. Slim today?

Earlier this year, Carlos invested big in a very well known company.  He bought a more than 6.4% stake in the New York Times (NYT).  That’s right he bought a newspaper company.  The New York Times publishes a number of well known daily newspapers across the US.  They also own a radio station, a number of websites (including about.com) and a regional cable network.

The most interesting part of this investment . . . his timing.  Right now the New York Times is struggling.  Ad revenue’s down 14%.  The company’s staggering from increased competition by the online world.  And, the softening economy is further eroding demand.  On top of that, the stock’s hitting new lows.  As a matter of fact, it’s been sliding downward for 5 years now (the chart doesn’t look good!).

So why make a major investment in this struggling company?

Remember, Carlos got his start as a turnaround expert.  I’m thinking he sees some exceptional value in the New York Times.  Clearly he sees something many others are missing.  I’m just not sure what.

But I do know this, Carlos isn’t acting alone.

Before taking his position over the summer, two big hedge funds started buying stakes as well.  The two funds are Harbinger Capital and Firebrand.  Now here’s what you need to know about these two characters.  They’re widely known as activist investors.

They like to invest in a company and then “work” with management to improve operations.  I use the word “work” lightly.  Sometimes the management teams don’t want any help.  Anyway, less than six months ago these firms captured two board seats.  It gives them incredible insight and influence over how the business is run.

Now you have a big value investor, Carlos Slim, putting a big chunk of money into the company.  Along with that you have two influential activist hedge funds taking board seats.  Might this be a good catalyst to improve company operations and drive the company value higher?

I’m sure Carlos thinks so, and I’m inclined to agree.

Take a look at the recent stock price action.  The New York Times stock has been on a 5 year slide.  At one point it traded for nearly $50 a share. Carlos got in around the $15 level.  Now the stock trades at new lows of $11 a share.

If you have a long-term horizon this investment might turn out to be a big winner.  If management can turn around the operations of the business (I’m sure the new board members are pushing hard) then we might see the stock climb substantially.

Now the investment is far from a sure thing.  But the risk to reward potential seems good to me.  If you like value investing and following smart investors, look at The New York Times.  To me it looks like a great opportunity!

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Category: Stocks

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The Dynamic Wealth Report works with a number of staff writers and guest experts who specialize in everything from penny stocks to ETFs to options trading. These guest analysts post under the 'staff writer' moniker for ease of use.

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