Nobody wants to invest in newspapers. So it’s not surprising that Torstar Inc. (Toronto: 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%.

Meantime, Torstar has been doing deals with another troubled media giant, Postmedia, 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.

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