If large-cap media stocks made headlines this week, it was for the opposite reasons than for the rest of the stock market.

Rather than the tide of profit warnings, dividend cuts and rescue fundraisings that are prevalent elsewhere, Thomson Reuters reported better than expected third-quarter results and reaffirmed its full-year revenue and profit targets. Average monthly net sales were up last month – not bad for a company that counts investment banks among its biggest customers.

The following day’s trading update from Reed Elsevier, the rival publisher, was similarly sound. Sir Crispin Davis, the company’s outgoing chief executive, said Reed was on track to report its strongest earnings growth in over a decade.

Taken together with last month’s tidings from Pearson – which said that 2008 profits would be at the top end of forecasts – it might come as no surprise that professional publishers have proved the best performers among European media stocks this year. Pearson has outpaced the FTSE all-share index by 25 per cent over the past 12 months. Reed has done even better – 35 per cent ahead of the wider market.

But the debate from here must be whether that relative resilience can be sustained. The conventional take is that such stocks are so-called “late cyclicals” – that their skew towards defensive niches (selling journals and databases to lawyers, accountants, scientists and doctors) and the subscription-based nature of much of their revenues means that they are among the last companies to feel the effects of economic downturn.

On that view, professional publishers are ideal resting places for investors in the early stages of a bear market but are best jettisoned later on in favour of media stocks that are more strongly geared to economic recovery – free-to-air broadcasters, perhaps, or advertising agencies. As the bottom chart shows, Pearson and Reed might have outperformed the FTSE all-share on its way down, but underperformed the stock market in the post2003 bull market.

Credit Suisse takes an alternative view. Rather than “late cyclical”, the Swiss broker contends that professional publishers are firmly contra-cyclical – and that an upturn in their share prices should come within months. Having looked back over the past 20 years, Simon Baker, media analyst, concludes that such stocks have enjoyed strong gains within three months of the US economy starting to recover.

Unlike most London-listed media companies, whose fortunes are more closely tied to the UK or continental European economies, professional publishers are more aligned to the US, which is commonly the biggest contributor to their sales. Reed drew about half of last year’s revenues from North America, for example.

On the view that the US economy is between nine and 12 months ahead of Europe, and that it will return to growth in the middle of next year, Credit Suisse reckons that professional publishers are set to deliver absolute share price gains before the rest of the media – which implies the first quarter of next year.

In the past two such downturns, in the early 1990s and the start of this decade, their shares bounced 26 per cent and 53 per cent respectively. Even as recession starts to recede, these professional publishers still outpaced the media sector – by 20 per cent and 72 per cent on those two occasions – and managed to sustain that strength for between 18 months and two years.

But there are other reasons to favour this niche apart from the belief it will be among the first to benefit from US economic recovery. First, the profit growth of professional publishers emerging from the 2001 downturn was hampered by the heavy digital investment they were forced to make to move their businesses online. However, that expenditure is now largely complete, with about 50 per cent of their sales now from digital media, against just 15 per cent for the sector as a whole.

That suggests that professional publishers are better placed to weather pressure from falling sales than, for example, directory and magazine publishers, which Credit Suisse contends have invested “too little, too late” in digital.

In addition, this year’s Anglo-Canadian merger of Thomson and Reuters means that the combined entity is very different from the standalone British information provider at the time of the 2001 downturn.

Secondly, their heavy US exposure means that professional publishers are key beneficiaries of an appreciating US dollar. At Pearson, for example, next year’s profits forecasts have been raised 17 per cent since the start of the year solely on the back of a stronger buck.

Of course, company-specific risks remain. The admission by Reed this week that the proposed disposal of its business information division “cannot be certain” – the expected sale price has dropped from £1.2 billion to about £700 million – raises the prospect of a more highly geared balance sheet. If it is not sold, Reed will have to raise debt to refinance $2 billion (£1.35 billion) of borrowings related to its ChoicePoint acquisition that comes due in 2010. Elsewhere, Pearson, through its testing division, is vulnerable to any squeeze on US schools spending.

Even so, with it still too early to buy the wider media sector, the premium of professional publishers looks set to persist.

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