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Traditionally newspapers have produced lavish profits and steady growth, so they traded at a substantial premium to the overall market. But these days, many publishing stocks are stuck near long-term lows and are as a group, cheaper in relative terms than at any time in the past 25 years. Investors believe that the Internet makes newspapers a classic Old Economy business and that the Web will lure away advertisers and readers, leaving local publishers with dwindling revenue and shrinking circulation.

I disagree and I'm not alone. While new-media insiders tend to be regular sellers, many publishers are aggressively buying their own stock. And in real-world transactions, newspapers command far higher premiums than they get on Wall Street. Tribune Co., for example, recently offered a near-100% premium to buy Times Mirror. In what follows, I'll make the case that newspapers are still among the best businesses around and that they just might become winners in the new wired world.

Read It And Reap Eight newspaper stocks that are overlooked by investors.

Data: Value Line, Zacks Investment Research

First, a lesson in newspaper economics. Circulation generally pays for newsprint, about 20% of total expenses. Advertising covers other costs. Few cities have competing dailies, which makes it easy to boost rates. Presses aren't cheap, but they last forever and don't gobble up capital. The result is steady growth and operating margins that can exceed 30% not to mention the added benefits of being friendly with the mayor, free publicity for your favorite charity and the power to keep your kid's drug bust off the front page.

Even before the Web, critics saw signs of change. Over the past decade, daily newspaper circulation has declined by 10%. This is evidence, perhaps, that young people don't read and older readers are dying off. But maybe not. Publishers have been closing unprofitable afternoon papers. During that same period, morning circulation increased by 10% while Sunday circulation remained flat. And new media may pose a greater threat to network television, which has been losing audience faster than newspapers.

Internet companies, meanwhile, were supposed to siphon off ads from newspapers. But so far, it's been the reverse. Sure, Monster.com (job ads) and Realtor.com (real estate) are threats. Sure, America Online Digital City network is up and running. But Microsoft jettisoned Sidewalk, its city-specific Web site business, and there's been more talk than action at other local sites. In the midst of all this, newspapers enjoyed advertising growth of more than 7% last year. The fattest increases (often more than 20%) are coming from national ads, with dot-com companies the most profligate spenders. With boosts from the election and the Olympics, this year could be lots better.

Why are newspapers so resilient? The secret is that they're intensely local the best place to keep up with everything from Little League scores to obituaries. Broadcasters and cable don't compete at this level, and I'm not sure anyone else can either. True, publishers came late to the Web, but now nearly every daily has its own site often attracting more local traffic than anyone else and making money. A typical technique: Help local car dealers create Web pages, then pool dealer inventory data so visitors to the paper's Web site can search the classifieds and dealer lots.

My table highlights companies with a significant stake in local newspapers. This is where conventional wisdom says the threat from the Internet is greatest and where I think there's the most opportunity. Pure plays such as Central Newspapers, Hollinger, Knight Ridder and McClatchy trade at mouthwatering discounts. But they have strong local Web sites and significant new-media "extras." Central, with the only dailies in Phoenix and Indianapolis, is a co-owner of BrassRing, a portal for job seekers. Hollinger, run by turnaround veteran Conrad Black, has depressed earnings because it's launching a national daily in Canada. Still, Black has invested $75 million in dot-com start-ups, and the company's stake in one recent initial public offering is worth $250 million.

Knight Ridder and McClatchy concentrate on metro dailies, and they're leaders in adapting print to the Web. Knight is linking its sites in a portal called Real Cities, an ideal platform for a dot-com spinoff. McClatchy has the top local site in all but one of its markets some of which offer portfolio valuation, Web hosting and free email. Lee Enterprises, which plans to sell its TV stations, is similarly savvy, but smaller: Its dailies are in mid-size towns where competitors are scarce.

E.W. Scripps and Washington Post look pricier, mostly because of exciting non-newspaper ventures. Scripps owns Home & Garden Television and is part owner of Food Network, both of which are enjoying 50% annual revenue growth. At the Washington Post, Kaplan is a once-stodgy test-preparation business that's become an aggressive Web player, while some analysts think the company's cable television operations alone could be worth more than $3 billion.

Finally, there's Gannett. It's the industry giant and exceptionally well managed with more than 30 years of record revenue and earnings. But Gannett shares have barely budged since 1997. Last year the company's Internet revenue was $40 million, with losses of $500,000. By contrast, Homestore.com (parent of fledgling Realtor.com) had revenue of $63 million and lost $93 million. Still, Wall Street values Homestore at $5.3 billion, nearly one-third as much as Gannett. Yet another good reason to own newspaper stocks.