Dear Mr. Berko:

In July 2004, my broker talked me into buying 150 shares of the Tribune Co. at $44 a share. I did, and it’s never been that high since. What happened to this stock? I always thought newspapers were safe, conservative and profitable businesses because they are a monopoly like the electric utility companies. Please tell me what to do with this stock. Should I sell it and take a loss or hold it until I break even?

W.E., Erie, Pa.

Dear W.E.:

When a stock we buy declines in price, why do we so often say, “My broker talked me into buying.” But when a stock rises in value, we seldom say we were talked into it. Oh, well! The Tribune Co. (TRB-$32.30) owns the Baltimore Sun, the Los Angeles Times, the Chicago Tribune, the Orlando Sentinel, the South Florida Sun-Sentinel and others, plus television superstation WGN, 26 other major TV stations, the Chicago Cubs and investments in various related businesses (20 percent to 50 percent equity positions).

TRB is now between Iraq and a hot plate. When TRB Chairman, President and Chief Executive Officer Dennis FitzSimons was asked to comment on a severe decline in readership, he said, “If they don’t want to read our newspapers, nobody is going to stop them.” Meanwhile, advertising revenues are way down, the Cubs haven’t played a World Series game in 61 years, Newsday has lost its luster and TRB’s ancillary business portfolio needs a major goosing.

As a result, revenues are falling like snowflakes, earnings are mushy, the stock is stuck in muck and the shareholders are grumpy. And FitzSimons (whose beautifully tailored suits cost a pressman’s monthly salary) intends to restore profitability by cutting costs, increasing advertising rates and reducing staff. Brilliant, that.

However, the real problem is its target readership. The TRB daily papers are concentrating on the wrong demographic (the 18- to 34-year-old age group, many of whom can’t read, can’t write and don’t vote), focusing on creating story content for the lowest common denominator, relying on wire services and hiring reporters on the cheap to write mediocre stories. The mood is blue (some say black), layoffs have devastated morale, editors are quietly looking for new jobs, midlevel executives have their resumes out and reporters have lost esprit de corps.

In spite of this malodorous ambience, I think the shares could be attractive. Where there’s trouble, there’s usually quid pro quo in the name of opportunity that some folks call a silver lining, and some investors say it’s the right time to buy. Seven groups of investors seem to be interested in purchasing Tribune’s assets. Though management recently sold the corporate jet that took FitzSimons hither and yon plus some real estate for $90 million, TRB has a cornucopia of properties easily worth billions. And that’s billions with a B.

TRB’s book value (that is, all of TRB’s assets less all its liabilities) is currently $23 per share. So TRB shares are trading at less than a 50 percent premium to book value. However, when Knight-Ridder was sold this year at $67, its book value was $19 a share and shareholders got better than three times book. Scripps (E.W.), which publishes 21 newspapers, trades at three times book value; The New York Times trades at more than two times book value; and News Corp. (which also owns 100 percent of Fox Entertainment) trades at close to three times book value.

It’s reasonable to believe that the Tribune Co. could sell itself for at least two times book value, which translates to about $46 a share. And with the TRB stock trading at $32.30, that could mean a per-share profit of nearly $14, which is a gain of more than 40 percent. However, if TRB is purchased for less than two times book, it would suggest that ineffective and incapable management has corrupted the value of its properties.

So don’t sell your 150 shares yet, because break-even might be around the corner. In fact, I’d even consider owning another 150 shares at $32-$33. There’s little downside at this price and on a risk-to-reward basis, the purchase of 150 more shares makes good sense.

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@adelphia.net.

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