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Published on Oct 18, 2016
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Coal filed for bankruptcy back in January seeking relief from more than
$5 billion in total debt. The metallurgical coal producer started
trading again earlier this month after emerging from reorganization.
George Schultze, founder of Schultze Asset Management, is fired up about
the stock, saying a leaner Arch is benefiting from higher coal prices
and a low valuation. "The company trades at less than four times cash
flow," said Schultze. "And the cash flow is growing rapidly due to
rising coal prices." Schultze added that even though there may be a
continuing negative political environment for coal producers depending
on the outcome of the election, it is "impossible to make steel any
other way than using met coal and this is the largest producer." Staying
in the commodities arena, Schultze is long Energy XXI bonds. Energy
XXI, one of largest E&P players in the Gulf of Mexico, is currently
in reorganization proceedings, but will emerge by year-end. Today's
bonds create the new company at under 2.5 times its cash flow, which
Schultze called a bargain. Schultze is also bullish on Fiat Chrysler ,
even though the automaker's stock has had a rough ride this year,
falling 32%. Last week, Fiat Chrysler reached a tentative deal with
unionized workers in Canada by agreeing to make more than $301 million
in investments in local operations. "Fiat Chrysler successfully spun off
Ferrari and it could spin off other assets like Maserati so it's worth
sticking with this stock through this rough patch, especially at these
very cheap levels," said Schultze. Finally, Schultze is short shares of
Caesars Acquisition Co. , up 86% year-to-date. CACQ stockholders are due
to be diluted to 24% ownership of a combined Caesars entity when the
company emerges from reorganization in 2017. The combined business will
have $9 billion in revenues and operating cash flow of $2 billion,
according to Schultze's forecast, putting the current valuation for the
combined company far too high. "This is one of the most complex and
litigious bankruptcy cases in history," said Schultze. "Perhaps the
hyperbole is pushing up the value of the combined company to a level
which we think is too high."
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