Beware of Drowning in Standard Pacific
Editor's note: "Bricks and Mortar" is a mock portfolio created by reporter Nicholas Yulico that is meant to help generate real estate and gaming-related stock ideas. In keeping with TSC's editorial policy, Yulico doesn't own or short individual stocks.
With the housing market still crumbling, there is a decent chance that some homebuilders are going to go bankrupt over the next year.
That means if you're eyeing homebuilder stocks, you have to be looking at the companies' debt loads and the cash flows. And in these areas, there's one builder that looks like it's heading for trouble: Standard Pacific (SPF).
I'm adding Standard Pacific to the Bricks and Mortar mock portfolio as a flagged stock, which means I think the stock should be sold because it is overvalued and has numerous hidden dangers. Buying the stock today is a bet that the company can survive in its current form -- something I don't think is likely.Before I delve into Standard Pacific and update two other portfolio holdings, Ryland (RYL) and Starwood (HOT), with news this week, let me share a "big picture" thought on the homebuilding sector. This week, I had the pleasure of attending a lecture by Marc Lasry, one of the pioneers of distressed debt investing. He is the founder and managing partner of Avenue Capital, a $20 billion fund that generally looks for subordinated debt securities that produce equity-like returns. Avenue has averaged about 16% annual returns in its institutional fund over the past decade by scouring the U.S., Europe and Asia for distressed bonds. Naturally, I had to ask Lasry what he thought of homebuilder bonds, many of which are already trading at distressed levels. This includes Standard Pacific. While Lasry didn't mention specific homebuilder names, he said his firm is doing a lot of homework on homebuilders, but has not invested yet. Why? "You have to buy at the bottom to make money," he said. "Homebuilders are not there yet."
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
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.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
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.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV