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Top Picks 2018: Is There a Star in the Sky for Torstar?

Torstar Inc. (TS.B)— which publishes Canada’s largest circulation newspaper, The Toronto Star — has been a market disaster in recent years.

Nobody wants to invest in newspapers. So it’s not surprising that Torstar Inc. (TS.B)— which publishes Canada’s largest circulation newspaper, The Toronto Star — has been a market disaster in recent years, asserts Gordon Pape, editor of The Income Investor.

In 2014, the shares traded for more than C$8 in Toronto. As I write, they are at C$1.60 and showing no signs of recovery.

The latest quarterly results showed more losses, despite stringent cost-cutting. But there are some interesting things happening behind the scenes.

Fairfax Financial, run by a canny investor named Prem Watsa who has been called the Warren Buffett of Canada, recently spent C$11.8 million to increase its holding of Torstar’s non-voting shares to 40.6%.

Download MoneyShow’s 35th Annual Top Picks Report: The 100 Best Stocks for 2018

Meantime, Torstar has been doing deals with another troubled media giant, Postmedia Network, which some think may be the precursor to a merger. Despite recent losses, Torstar has more than C$60 million in cash and no bank indebtedness.

The stock continues to pay a small quarterly dividend of $0.025, to yield 6.25%. This stock could conceivably go to zero.

But if Fairfax successfully applies its turnaround skills (it says it will consult with management even if it only owns non-voting shares) and/or a deal emerges with Postmedia to combine their most valuable assets and shed the rest, this stock could be a big surprise.

Gordon Pape is editor of The Income Investor.

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