We are very excited about the business upside of 86 million Americans taking an interest in the welfare of the city or town they live in. The primary way you learn what is going on in your city is via professional journalists who report for local newspapers and local network-affiliate TV stations. Well-written and well-spoken words are scarce and the list of public companies that provide the information are few and are well defended from competition.
Tegna (TGNA) is the largest owner of CBS and NBC affiliate stations and owns Cars.com and Careerbuilder.com. They reach approximately one third of U.S. households and local television content is among Facebook’s most popular posts. It trades for 9.9-times First Call 2016 estimated profits, pays a dividend around 2.5% and produces very substantial free cash flow.
Gannett is the largest owner of local newspapers in the U.S. They have a strategy providing a template to their digital/print papers in cities across the U.S. to put local community news into words and use the mega-brand, USA Today, to inexpensively provide national and international news. The stock trades at 10.1-times First Call 2016 estimated profits, 7.2-times free cash flow and yields well over 4.2% in dividends.
Why is putting down roots so important? The American economy is driven by weddings, babies, cars that fit car seats and home buying/remodeling and furnishing. We believe that the current fears of a slower economy are the last gasp of a post-financial meltdown era and are about to be replaced by exiles in the U.S. building homes and having families. This will produce much higher economic growth, spawn higher interest rates and benefit companies with a direct and/or indirect connection to an America, which will be much different in ten years.
William Smead is CEO and chief investment officer at Smead Capital Management.