This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Starwood Shines as Next Hot Hotel Play

Editor's note: "Bricks and Mortar" is a series of columns written by real estate reporter Nicholas Yulico meant to help TheStreet.com readers generate real estate and gaming-related stock ideas.

With Hilton Hotels (HLT) being sold at a hefty premium to private-equity private-equity buyers, the best bet left in lodging is Starwood Hotels (HOT).

So today, I'm adding Starwood to the Bricks and Mortar mock portfolio as a company worth buying.

Starwood owns some of the best brands in the hotel industry -- including Sheraton, Westin and W Hotels -- that will provide a strong international growth platform for years to come. Meanwhile, the spinoff of many of its hotel assets last year has left the company with a business model weighted toward a high-margin management and franchise fee business, along with time-share sales.

In addition, Starwood's operations produce a ton of free cash flow, while the balance sheet has low debt levels. That combination makes the hotelier an attractive buyout candidate for private-equity firms, which continues to eye hotel assets because they're cheap relative to other real estate sectors.

My last hotel pick, Hilton, agreed to be acquired by Blackstone Group (BX) for $47.50 a share, a 37% premium to where the stock was trading when I added it to the Bricks & Mortar portfolio.

Starwood shares have climbed since the Hilton deal, so it doesn't offer as much upside. But I still expect the stock to rise more than 15% from the current $72 level -- and as much as 25% if a buyout company approaches.

Starwood's stock should perform well so long as lodging fundamentals remain strong over the next few years, which admittedly isn't a risk-free proposition. Rival Marriott (MAR) on Thursday tempered its revenue projections for 2007, signaling that the hot growth for the group may be cooling.

"Growth is slowing (in lodging), but it's still stronger than other sectors," says Dean Frankel, portfolio manager with Urdang Investment, which owns Starwood and other hotel stocks. Frankel says lodging is in a midcycle pause right now, but he expects growth to pick up next year, once the economy improves.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,098.45 +18.88 0.11%
S&P 500 2,003.37 +6.63 0.33%
NASDAQ 4,580.2710 +22.5760 0.50%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs