Nicholas Yulico
Another risk is that Boyd's properties could come under even more severe distress than I project. I'm assuming EBITDA falls 14% this year and another 3% next year.
Nonetheless, with the stock trading at this depressed multiple, I'm willing to take the gamble that most of the negativity is priced into shares already -- even if there may be few near-term catalysts to move shares higher. The Hedge: Short Perini To hedge against owning Boyd, I recommend shorting Perini stock. The construction company is heavily reliant on commercial building, which represents about 80% of revenue. The bulk of this commercial building is tied to resort and casino development. Perini is the contractor on the Cosmopolitan Resort and Casino, which is being built right next to the MGM City Center development on the Vegas Strip (where Perini is also the contractor). Perini shares plunged earlier this year when the developer of the Cosmopolitan defaulted on his loan from Deutsche Bank (DB Quote - Cramer on DB - Stock Picks), but shares have since erased some of those losses. Deutsche Bank has since taken over the development and continues to fund the project -- at a cost of $70 million per month, according to a recent Bloomberg report. Perini is getting paid for now but still had $1.2 billion of work remaining under the contract, as of March 31. Deutsche Bank declined to comment, and Perini did not return a call. I believe there's significant risk that Deutsche Bank will simply stop funding the project this year if it is unable to find a white knight to come in and buy it. Banks remain under severe pressure to conserve capital today. Deutsche Bank over the past month met with other major casino operators in Vegas to gauge the viability of the Cosmopolitan project, according to an industry source, and the verdict wasn't very encouraging. If Deutsche Bank decides that every new dollar being sunk into the project is just another lost dollar, then Perini risks losing the rest of this contract, which would be a severe hit to its revenue, and its stock.| Bricks and Mortar Portfolio A Look at How Nicholas Yulico's Picks Have Performed |
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| Rating Date | Price at Rating | Rating | Current Price* | Total Return** | Year-End '07 Price | 2008 YTD Return | |
| Brookfield Properties (BPO) | 1/23/2007 | 28.67 | Own | 18.09 | -36.9% | 19.25 | -6.0% |
| Global Real Estate ETF (RWX) | 1/23/2007 | 64.00 | Own | 47.74 | -25.4% | 56.95 | -16.2% |
| Ryland (RYL) | 1/23/2007 | 56.00 | Flag | 22.80 | 59.3% | 27.41 | 16.8% |
| Penn National (PENN) | 2/6/2007 | 45.56 | Own | 34.00 | -25.4% | 59.55 | -42.9% |
| Melco PBL (MPEL) | 3/12/2007 | 15.46 | Own | 9.41 | -39.1% | 11.56 | -18.6% |
| Starwood Hotels (HOT) | 7/12/2007 | 72.37 | Own | 40.84 | -43.6% | 44.03 | -7.2% |
| Home Depot (HD) | 1/30/2008 | 29.71 | Own | 24.66 | -17.0% | -17.0% | |
| Pulte Homes | 1/31/2008 | 16.35 | Flag | 10.37 | 36.6% | 36.6% | |
| Average Total Portfolio Return, Unweighted, (including closed ratings) | 13.5% | (0.3%) | |||||
| Closed Ratings | Rating Date | Price at Rating | Rating | Closing Price*** | Return** | ||
| Hilton (HLT) | 3/2/2007 | 34.69 | Own | 47.50 | 36.9% | ||
| Home Solutions of America (HSOA) | 4/24/2007 | 4.98 | Flag | 1.06 | 78.7% | ||
| Standard Pacific (SPF) | 10/26/2007 | 5.25 | Flag | 2.20 | 58.1% | 3.35 | 34.3% |
| Trump (TRMP) | 1/23/2007 | 17.50 | Flag | 3.56 | 79.7% | 4.30 | 17.2% |
| Close At Start of Portfolio | Current Value* | ||||||
| S&P 500 | 1427.99 | 1,283.15 | -10.1% | 1468.36 | -12.6% | ||
| U.S. MSCI REIT Index | 1140.36 | 828.45 | -27.4% | 870.64 | -4.8% | ||
| *(6/26/08 closing prices) **For "flagged" stocks, a drop in price is tracked as a positive for the portfolio, and a rise in price is a negative. ***Hilton closed out of portfolio on 10/26/07 because Blackstone Group completed purchase of firm. HSOA closed out of portfolio on 12/26/07 at day's closing price SPF closed out of portfolio on 1/11/08 at day's closing price TRMP closed out of portfolio on 5/29/08 at day's closing price | |||||||
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