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- Agreement includes a global cross license for cellular standard -essential patents between two of the most significant contributors to 3GPP standards

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Car stocks skidded into a pileup this past week, and Fiat Chrysler Automobiles suffered more damage than most. Its second-quarter earnings shortfall, reported on Wednesday, appears to have rattled investors less than the sudden death that morning of Sergio Marchionne, who took over Fiat in 2004, led the buyout of Chrysler in 2009, and rewarded shareholders with dot-com-like returns—more than 250% over his final five years.

While General Motors (ticker: GM) lost 4% on the day following its report, and Ford Motor (F), 6%, Fiat Chrysler (FCAU) plunged 12%, even though its results were mixed, showing mostly solid demand offset by some growing pains.

The car-making industry is a thankless place for stock investors at the moment. Even so, Fiat Chrysler, which is expected to grow earnings faster than its U.S. rivals in coming years, trades at a tantalizing 4.5 times this year’s earnings forecast, making it 75% cheaper than the broad S&P 500 index. UBS analyst Patrick Hummel, who upgraded the Italy-traded shares (FCA.Italy) to Buy from Neutral this month, predicts a rise to 23 euros ($27), more than 50% above their recent price. Even that target would leave shares priced more humbly than those of Ford, relative to earnings.

Fiat Chrysler Still Has Lots of Gas in Its Tank

Fiat Chrysler is London-based, has an Italian heritage, collects much of its revenue from U.S. customers, and has a big manufacturing presence in Mexico. The company dates back to Fabbrica Italiana Automobili Torino (Italian Car Factory of Turin), or Fiat for short, co-founded in 1899 by small-town mayor Giovanni Agnelli, whose family holds voting control today. The name Fiat might bring to mind small, spunky cars, and the company still makes those, like the Fiat 500, which Car and Driver said resembles a scoop of gelato, or the iconic, topless Fiat 124 Spider, which recently came out of retirement. But today, the company relies heavily on beefy U.S. vehicles like Jeeps and Ram trucks for profits. Car bets are kept modest; that new Spider is really a Mazda MX-5 with some tweaks and exterior restyling.

Fiat Chrysler sold its stake in Ferrari (RACE) beginning with a 2015 stock offering, and those shares have raced ahead. That has led to speculation that Fiat Chrysler will sell its Maserati and Alfa Romeo brands, as well. It is expected to spin off components-maker Magneti Marelli to shareholders late this year or early next year.

On July 21, with Marchionne gravely ill, Fiat Chrysler named Mike Manley, credited with turning around Jeep, as chief executive. His top priority, he told investors during Wednesday’s earnings call, is to deliver on Marchionne’s audacious five-year goal, which includes generating €13 billion to €16 billion ($15.2 billion to $18.7 billion) in earnings before interest and taxes by 2022, up from about €7 billion last year. “We have all of the resources we need,” said Manley on the call.

He’s off to a balky start. During the second quarter, Ebit declined to €1.66 billion from €1.87 billion a year ago. The good news is that the culprits appear fleeting. A redesigned Ram pickup has run into production delays, which Manley says will be sorted out by the fourth quarter. And China announced early in the quarter that it would reduce tariffs on imported cars effective on July 1, which led to a plunge in Maserati sales as buyers held off. That should reverse in the quarters ahead.

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Meanwhile, worldwide shipments and revenue rose. Market share in the U.S. grew on strength from Jeep Wrangler and Cherokee. Free cash flow came in ahead of expectations, at €1.5 billion, on restrained capital spending. Net industrial debt vanished, giving way to a €500 million net cash position. If Fiat Chrysler is able to generate even €4 billion a year in free cash going forward, that amounts to a free cash yield of 14%, compared with less than 5% for the S&P 500. As UBS’ Hummel points out, it could fall well short of its 2022 goal and still reward shareholders handsomely.

As investors mark the passing of a great value creator, they might consider that he has left Fiat Chrysler on the road to greater prosperity.

A large merger among two plucky smaller banks may create a national competitor. One caveat: If there’s a hard Brexit, all banks will suffer.

They could be contenders. Smaller British lenders known as challenger banks have swaggered about of late, thanks in part to a significant merger agreed upon last month.

CYBG (ticker: CYBG.UK), the parent of Clydesdale Bank, Yorkshire Bank, and app-based bank B, has vowed that its $2 billion takeover of peer Virgin Money Holdings (VM.UK) will turn it into the “first true national banking competitor” to the United Kingdom’s banking giants, rather than just a challenger.

For investors, the question now is which stocks in this plucky sector—filled with tech-savvy start-ups and refreshed old brands—look like the best bets, especially given that CYBG and Virgin Money’s shares have rallied on merger hopes. But other players still could attract buyouts.

Charter Court Financial Services Group (CCFS.UK) and OneSavings Bank (OSB.UK) should be your first pick and second choice, respectively, according John Cronin, an analyst at Irish brokerage Goodbody. One reason to feel bullish about these two members of the mid-cap FTSE 250 index is their exposure to the growing buy-to-let market, Cronin says—lending to people who are buying properties in order to rent them out.

In large part for that market, challenger banks end up being “overcompensated relative to the risks that they’re running,” the analyst tells Barron’s. “While the risk profile of the lending is higher than what mainstream banks do in terms of mortgage lending, the spread is higher, too.”

The larger banks will encroach on the buy-to-let market in the long run, but it looks promising for challengers, at least for the medium term, Cronin says. And while the U.K.’s housing market has been cooling, and some reports have described the recent buy-to-let boom as ending, thanks in part to new regulations, he sounds upbeat. However, he acknowledges pain will come if home prices dive due to a chaotic “no deal” crash out of the European Union by the Brexit-bound U.K.

“All the banks are going to be in trouble, effectively, if we have a calamitous drop in prices. But what’s going on now is absolutely manageable, because these new challenger banks are implementing pretty strict loan-to-value and loan-to-income criteria,” says Cronin, whose team has put a price target of 505 pence ($6.64) on Charter Court and sees OneSavings hitting 526 pence, implying rallies of about 50% and 20%, respectively. Each stock gets a Buy rating.

Charter Court also draws praise from Cronin for boasting a “low-risk business model, because it has best-in-class underwriting.” In addition, he likes how it’s “creating value by selling its residual interests in securitizations.”

* Aeffe Upgraded to Outperform at Mediobanca SpA; PT 3.78 Euros

Asian stocks began the week lower as investors questioned earnings results against lofty expectations and prepared for key policy meetings from the world’s biggest central banks. The onshore yuan added to last week’s slump, driven in part by China’s moves to ease monetary conditions.

Equities fell from Tokyo to Sydney. U.S. and U.K. equity futures signaled declines when trading begins in New York and London, after the S&P 500 Index closed weaker Friday. The yen steadied and Japan’s benchmark 10-year bond yield erased gains as the Bank of Japan offered to buy bonds amid speculation it may discuss adjusting its ultra-loose monetary policy this week. The dollar ticked higher alongside U.S. Treasury yields.

Nikkei -0.71% Hang Seng -0.77% CSI -0.46% Shanghai -035% Shenzen -1.37%

Eur$ 1.1664 CNH 6.8366 CNY 6.8299 JPY 111.05 GBP 1.3115 CHF 0.9945 RUB 62.9211 WTI$ 68.93 +0.35%

S&P -0.29% EuroStoxx -0.57% FTSE -0.62% DAX -0.55% SMI -0.41%

Macro :

- Mnuchin to Wield Power Over Yield Curve With Fresh Supply Boost

- U.K. Democracy ’Facing a Crisis’ From U.S. Social Media Giants

- London First Proposes Fare, Tax Hike to Fund Crossrail 2: FT

Keep an eye on :

- AI FP : Air Liquide 1H Recurring Op. Income EU1.62b, Est. EU1.68b

- ALM SM : Almirall First Half Net Income EU52 Mln Vs. Loss EU73.1 Mln Y/Y

- AMP IM : Amplifon Consensus Seen Rising, PT at Street-High: Jefferies

- BABA LN : Babcock Loses Out on Army Vehicle Repair Contract: Sunday Times

- BARC LN : Barclays’ Bogucki Asks Judge to Dismiss Criminal Charges: FT

- BT/A LN : BT Sports Said to Lose NBA, UFC Broadcast Rights: FT

- CLN SW : Sabic Awaiting Antitrust Clearance to Buy Clariant Stake: CEO

- CNP FP : CNP Assurances First Half Net Income 1.3% Below Estimates

- CWD LN : Countrywide’s Lenders Concerned Over Cash Call, Telegraph Says

- DLAR LN : Crystal Amber Open to Raising De La Rue Stake to 10%: Telegraph

- DBK GY : Deutsche Bank Shifts Half Clearing from London to Frankfurt: FT

- DIC GY : DIC Asset First Half Total Income EU124.3 Mln

- DNO NO : DNO Says Passes Peshkabir Output Target of 30,000 BOPD in Iraq

- EFGN SW : EFG Names Tho Gea Hong Head of Singapore Branch

- ENAV IM : Enav Board Approves New Group Organizational Structure (July 27)

- ENI IM : Eni Is Raising Dividend Faster Than Expected, CEO Tells MF

- ERF FP : Eurofins Announces Issuance of EU550m Schuldschein Loan

- FCA IM : Fiat May Be Considering Gorlier as New EMEA Head, Corriere Says

- G1A GY : GEA Group Second Quarter Oper Ebitda Beats Estimates

- HEIA NA : *HEINEKEN 1H ORG. BEER VOLUME UP 4.5%, CO.-COMPILED EST. UP 3.1%: Heineken NV First Half Organic Beer Volume Beats Estimates

- INDV LN : Indivior: FDA Approves Perseris for Treatment of Schizophrenia

- INGA NA : ING Group Invests EU21m in TransferMate for Minority Stake

- LHN SW : LafargeHolcim Plans Small Acquisitions, CEO Tells NZZ

- NHH SM : NH Hotel Should Be Skeptical of Hyatt Inquiry, Minor Tells Board

- OERL SW : Oerlikon Sells Drive Systems to Dana Instead of Floating Unit

- SAP GY : Lidl Said to Write Off EU500 Mln on Failed SAP System: HB

- SHL GY : Siemens Healthineers Third Quarter Adjusted Net Misses Estimates

- TKWY NA : Takeaway.com Agrees to Buy Israeli 10bis for ~EU135 Mln

- TGYM IM : Technogym Sees Positive Outlook, Orders Trend Good: Sole

- TCG LN : Thomas Cook Eyes Breakup With Airline Sale, Sunday Times Reports

- FP FP : Inpex Begins Gas Production at $40 Billion Ichthys LNG Project

- UNI IM : Unipol Execs May Face Market-Manipulation Indictment: Repubblica

- VAO GY : Vapiano Targets Profit by 2020, CEO Tells Rheinische Post

- VOW3 GY : VW Might Have to Wait Until 2020 to Bring Duesmann Aboard: FAS

- WDI GY : Wirecard Sees ‘No End’ to Company’s Stock Rise, CEO Tells WamS