We’re told media conglomerates are among the most hated industries in the market today. Everyone knows they are struggling to keep afloat with competition from the Internet. Newspapers compete with blogs and free news sites. Magazines compete with nontraditional gossip and entertainment websites. And television ad revenue is continuing to dry up because of TiVo and DVRs. Even motion picture studios and record labels aren’t realizing what they’d like because of the never-ending efforts of media piracy.

But that doesn’t explain why these companies are still trading at astronomical ratios. Take The New York Times Co. for instance. NYT is one of the most out-of-favor stocks on Wall Street, or at least that’s what you’d think. Meanwhile, it’s trading at more than 2.2 times its book value. That means that if they called it quits tomorrow, shareholders would only receive about 45% of their money. And by shareholders, I mean preferred shareholders. Commoners probably wouldn’t get a penny.

Rupert Murdoch’s  News Corp (NASDAQ:NWSA) is a little better at 1.5 times book, which would be a fair valuation for a growing business. Murdoch’s precious Wall Street Journal addition isn’t even helping. He can add as many of these fallen media giants as he wants. It’s still not helping him grow his bottom line.

The problem is debt. These companies are swimming in it – especially smaller, regional media companies. Citadel Broadcasting, owner of the ABC Radio Network and 4,500 affiliates, is expected to close its doors soon, even though it somehow pulled a $2 million interest payment out of thin air earlier this month. The company owes some $2 billion, but its common stock is worth about six cents per share on the bulletin boards.

We already know what happened to Tribune Co. The owner of the 162-year-old Chicago Tribune filed for Chapter 11 last December, and was just cleared to sell the Cubs and its Wrigley Field.

These stories are nothing new. They’ve been happening for a while, and it doesn’t look like they are going away any time soon. According to Reuters, television and print companies, along with automobile and airlines, are about four times more likely to go bankrupt in the next year than any other type of company

So why are the likes of The NY Times and News Corp still trading for more than they’re worth?

To us, it sounds like another case of investors covering their eyes and ears and pretending not to know there’s even a problem. So instead of building up the bubble, we’re just sitting on years of letting the bubble bounce on down the road. Today’s economic situation might just be the pinprick to pop this forgotten 20th century blister.

Last year, print ad revenue fell 18%. When these advertisers start filling newspapers and magazines again, they’ll do so in the online versions first. After all, that’s where the sweet 18-34 age group spends most of its time.

Murdoch and Turner can spend any amount of money on traditional media business they want. The industry as we know it – and the stocks that represent it – are headed for a collapse worse than the tech and financial services industries. At least tech and financials still play a significant role in the world economy. Television and print media don’t.

You can see how the market treats ugly industries. It just lets them hang out for years longer than they should. GM was dead long before Obama grabbed the defibrillators. The same has been true with television and print. That’s about to change.

Both the auto and television/print industries as we know them are showing us a new way to watch a collapse. Make sure you’re on the right side of this trade.

Sincerely,

Jim Nelson

Source: The New Way to Collapse an Industry

I also told you last week that I’d give you the name of one of my favorite players in health care IT, a company benefiting as medical providers finally realize they can save billions in the long run with efficient software systems…

This company provides the software to streamline simple tasks – like writing prescriptions and ordering supplies – to 20% of U.S. doctors and 75% of the country’s large hospitals. Its IT infrastructure is connected to 90% of all retail pharmacies and more than 1,800 insurance companies. Its software gets 3.7 million log-ons per month. And it’s expanding overseas, with customers in Canada, UK, France, the Netherlands, Australia, New Zealand, Puerto Rico, and Israel. ———- Advertisement —————–
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Health care information technology is a $25 billion growth industry, and McKesson Corporation (MCK) is its 800-pound gorilla.

McKesson provides hardware, software, and consulting focused on improving the quality of care while reducing costs for its hospital, pharmacy, physician, and insurance customers. Over the years, McKesson has used a combination of large R&D investments and shrewd acquisitions to cement its position as the top player in the health care IT industry.

McKesson is not only the largest health care IT company but also one of the most loved by its customers. The leading independent health care IT research firm, KLAS, ranked nine of McKesson’s solutions either as the best or as a category leader in its 2006 report.

McKesson’s health care IT segment is growing around 20% per year. And is one of its most profitable, as well. Despite bringing in only 1.9% of the company’s $88 billion in revenue last year, the IT segment is providing 9.5% of the company’s total operating income.

I like to call McKesson the “hub of American health care.” It’s the biggest player in the health care IT industry, but its main business is drug distribution – shuffling drugs from manufacturer to consumer. Every night, McKesson distributes more than 1.5 million drugs and medical products to more than 75,000 different sites, everywhere from Wal-Mart to the Department of Veterans Affairs. In the process, it rings up nearly $2 billion in sales per week.

Today, McKesson trades around $53 per share, which I think is a great price. The company also pays a modest, 0.5% dividend.

But here’s the best part about owning this health care giant: McKesson has consistently positioned itself as the leader in every new and lucrative medical business… the latest of which is health care IT. Without McKesson, the health care system as we know it would collapse. So this is this is a stock you’ll never have to sell.

Good investing,

Rob Fannon

P.S. McKesson is a great company to own for a broad, long-term bet on health care IT, but I recently found a fantastic “pure play” on the industry…

This small, niche player has plenty of room for continued growth and a limited number of competitors, so it’s a safe bet. It pays out a 7% annual dividend. And I think investors today could make at least a 50% return in about 18 months. Click here for the full story.