Seeing the Forest Through the Trees?

According to a filing with the Securities and Exchange Commission (SEC), Fairfax Financial Holdings recently bought another 2.1 million shares of Resolute Forest Products (RFP). Fairfax's 13F filing for the end of September had the holding company owning 19 million shares of the $1.2 billion market cap paper company. After its most recent purchase, the position is approaching 26 million shares. Resolute shares are down 20%, year-to-date. The stock reached its current market price in May, and has been quite volatile since then. Fairfax is managed by Prem Watsa, who has been called "the Warren Buffett of Canada" for his approach to investing.

In the third quarter of the year, Resolute's revenue declined compared to a year ago but its cost of sales increased. Operating income was down significantly and the company could not attribute this to high closure costs, as it did in the first half of 2012. A notable improvement in operating income occurred in newsprint -- still the company's largest source of revenue -- which was offset by weaker numbers in segments such as pulp and coated papers. However, earnings per share (EPS) came in at $0.32, which is quite strong for where the stock is trading. Annualizing the figure for last quarter generates a P/E multiple of 9. Of course, there is no guarantee that Resolute will be able to continue performing that well, but it's a plus to see that the company only has to maintain its financials rather than grow. The third quarter was responsible for essentially all of the company's earnings for the first nine months of the year. However, in previous quarters, Resolute had recorded special charges....331 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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