Vulture Investor: These Brexit-Battered Stocks Are Still Bargains

In an interview with TheStreet, stressed-asset specialist George Schultze shares his top trade ideas for capitalizing on the fallout from Great Britain's decision to leave the European Union.
By Keith Griffith ,

After a panicked sell-off in reaction to the United Kingdom's vote to leave the European Union last month, U.S. equities markets have broadly recovered their losses, and then some.

But George Schultze, managing member of Schultze Asset Management and a self-proclaimed "vulture investor" who specializes in scooping up distressed securities, believes there are still some oversold bargains that are ripe for the picking.

"We think the market has overreacted," said Schultze. The current skittishness in the market reminds him a bit of the dot-com bubble's aftermath, which saw a flight from equities of all kinds to bonds. 

Schultze finds several battered stocks in the financial sector especially appealing. At the top of his list is Deutsche Bank (DB) - Get Report , currently trading at less than a third of its book value.

Skeptics of the stock cite a raft of bad loans, significant litigation exposure, and the prospect of prolonged low interest rates. The company has posted massive losses on plunging revenue in recent quarters. 

"Deutsche Bank is too big to fail," Schultze argued. "Most likely, the German government or the EU would step in" to save the bank, he added.  

On this side of the pond, Bank of America (BAC) - Get Report  also makes Schultze's list. Though the stock posted a rally on JPMorgan Chase's (JPM) - Get Report earnings beat, it has yet to reach pre-Brexit pricing. The stock is trading at about 10 times the company's earnings, compared with an industry average of 13.5 times earnings, according to data from Bloomberg.

The auto sector also holds a few appealing trades, Schultze says. In the U.S., he is long on  General Motors (GM) - Get Report , which is down nearly 10% from its price at the beginning of the year. GM shares are trading at 2.5 times EBITDA -- or earnings before interest, taxes, depreciation and amortization -- an accounting metric used as a rough proxy for cash flow.

Ford (F) - Get Report , GM's only real comparable competitor in the U.S., trades at three times EBITDA. (For a head spinner, consider Tesla's (TSLA) - Get Report price-to-EBITDA ratio of 46.)

Finally, Schultze maintains that London-based Fiat Chrysler (FCAU) - Get Report is oversold. The beleaguered automaker is trading at a lowly 1.5 price-to-EBITDA ratio, compared with an average of 6.8 for Western European automakers.

"Rarely," said Schultze, "have I ever seen companies trade at such low multiples to cash flow."

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