TORSTAR CORP. $5.04 (Toronto symbol TS.B; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 78.9 million; Market cap: $397.7 million; Price-to-sales ratio: 0.3; SI Rating: Above Average) publishes The Toronto Star, which is Canada’s largest daily newspaper by circulation. The company also publishes three other daily papers and over 100 weeklies, mainly in southern Ontario. Newspapers and web sites account for about 70% of Torstar’s revenue, and 60% of its earnings.

The company’s other main business is wholly owned Harlequin Enterprises Ltd., the world’s leading publisher of romance-fiction books. Harlequin also publishes non-fiction titles, such as self-help and diet books. Harlequin sells 95% of its books outside of Canada, which helps reduce Torstar’s reliance on Ontario, where the recession has had a significant impact. It also helps Torstar benefit from a lower Canadian dollar.

Torstar continues to suffer from lower advertising revenue at its newspapers, with real-estate and employment ads particularly hard hit. However, Torstar’s management feels that demand has stabilized following a sharp drop in the first two months of 2009. As the largest newspaper in its market, The Toronto Star is in a good position to attract advertisers as the economy recovers.

The company also owns many of Canada’s most visited web sites, such as thestar.com, toronto.com and workopolis.com (50% owned). These should benefit as more people use mobile devices to look up local information, such as movie times.

As well, the company should start to realize the benefits of its recent restructuring, mainly job cuts. These moves should save $33.3 million a year. To put that in context, Torstar earned $50.3 million, or $0.64 a share (before one-time items), in 2008.

In June, the S&P/TSX Composite Index dropped Torstar because it no longer meets its minimum capitalization requirement. (The stock price is down nearly 70% from $16 last August.) That prompted mutual funds that mimic the index to sell their Torstar shares, which temporarily pushed the stock further down, to around $4.30 a share.

Torstar’s 2009 earnings will likely rise to $0.69 a a share. The stock trades at 7.3 times that estimate. That’s a low p/e for any ongoing business, let alone a company with one-of-a-kind trophy assets like Torstar. Because of its depressed stock price, the $0.37 dividend yields a high 7.3%.

Torstar is a buy.