By Rudi Filapek-Vandyck, Editor FNArena (back from traveling abroad)
I received the question below about Fairfax Media ((FXJ)) from FNArena subscriber Brad Mendel. I have decided this is one question and response worth sharing with other readers and subscribers.
Hi Rudi, Would you please provide your thoughts on Fairfax Media. The spread of broker opinions on the company is quite staggering with price targets ranging from 60 cents (BA-Merrill) to $1.25 (RBS) and with a volatile range of price targets and recommendations in between. It is very rare for me to see one stock have such differences of opinions. Would you please provide your thoughts on the company and the reason why you think the broker opinions and valuations differ so greatly.
It goes without saying that Fairfax shares are cheap. For many stockbrokers this is simply one temptation too much. They simply have to have a Buy rating for the stock. For this particular reason.
What we as outsiders/investors have to assess is whether buying in at cheap prices is worth the risks. Risk is something that is very difficult to quantify and in my view this explains the wide variety in views and forecasts. At this level, small differences can make a huge change. So a little more optimistic forecasts can easily lead to a price target double today's share price.
The problem I personally have with stocks such as Fairfax is that, even if there will be a rally at some point on anticipation of better times ahead, the structural headwinds and challenges are so obvious and so fierce that I simply cannot even consider Fairfax as a potential "investment" - probably never ever again (unless my current view for the decade ahead has to be adjusted at some stage).
But what Stock Analysis and R-Factor do show is that, from a more trading oriented perspective, it could be worth at some point owning the stock because there's a lot, and I mean a lot, of upside rally potential.
It goes without saying that such an approach has little resemblance with "investing"; this is why I like to take the time to point out the difference.
From a timing perspective: I think such considerations are too early, still. There are far better stocks out there with better fundamentals, better outlooks and far lesser risks.
I hope all of the above assists,