Homebuilder Standard Pacific (NYSE: SPF) got its start in 1965 and benefited nicely from the recent housing boom in California. But, of course, the past couple years have been brutal. The stock has plunged from $22 to $3.50.
However, things got a little brighter today: MatlinPatterson Global Advisers LLC, a private equity firm, has agreed to invest $530 million into Standard Pacific.
It's definitely a leap-of-faith. In Q1, Standard Pacific sustained a loss of $3.34 per share or $216.4 million as revenues dropped from $651.1 million to $348.2 million.
Then again, MatlinPatterson will get some protection. For example, the firm is getting $382 million in senior convertible preferred stock (the conversion rate is at $3.05 per share). They will also get three new board seats.
The good news is that MatlinPatterson is a long-term player and understands the complexities of restructurings. What's more, they have more capital if Standard Pacific needs it, since the firm manages about $9 billion.
And so far, investors like the deal. In today's trading, Standard Pacific's stock is up over 63%.
Anybody who takes even a casual look at the October delinquencies knows that these companies are going to be severely capital-challenged. Meanwhile, value guys like Third Avenue Management (Radian) and fellow travelers (Old Republic and PMI) make Pyrrhic stands and engender short squeezes that are mistakenly not used to recapitalize. And outfits from E*Trade (NASDAQ: ETFC) (Cramer's Take) to Fannie Mae (NYSE: FNM) (Cramer's Take) are left holding the bag on this stuff.
John Bollinger is among the industry's most respected technical analysts. In the "Contrary Corner" of his Capital Growth Letter, the advisor suggests scaling into a package of three home building stocks.
He explains, "For this exercise, I've looked at 20 home building stocks, each stock based on its monthly charts. Yes, I know that seems like a sacrilege in the day and age of hyperactive short-term trading, but we are taking the long view here.
"I then looked at the percentage drop from the stock's most recent swing high and then the number of months from the peak to the trough or the present if a swing low has not been established. I then looked to determine if there is a swing low in place.
"After reviewing these 20 homebuilding stock, I've chosen 3 candidates to start. I like the idea of selecting a fair number of small positions that add up to a normal sized position, then eliminating the non-performers as time passes while keeping the winners. We are choosing WCI Communities (NYSE: WCI), Standard Pacific (NYSE: SPF) and St. Joe (NYSE: JOE) as our first commitments."
Each day, Steven Halpern's TheStockAdvisors.com features the latest stock picks and investment ideas from the nation's leading financial newsletter advisors.
MOST NOTEWORTHY: Sanofi-Aventis, Lifecell, Mylan Labs, Panera Bread and Norsk Hydro were today's noteworthy upgrades:
Societe Generale upgraded shares of Sanofi-Aventis (NYSE: SNY) to Buy from Hold as they believe pipeline maturation over the next 12 months can drive the stock higher.
Piper upgraded shares of Lifecell (NASDAQ: LIFC) to Outperform from Market Perform after their recent survey indicated that AlloDerm remains the leading biologic hernia mesh on the market and competition is making little headway.
JP Morgan upgraded Mylan Labs (NYSE: MYL), Panera Bread (NASDAQ: PNRA) and Norsk Hydro (NYSE: NHY) to Overweight from Neutral. The firm upgraded Mylan based on its position in the global generics market and above-average growth; Panera was upgraded on valuation, as they believe the recent operating risk is now behind the company; Norsk Hydro was upgraded, as they believe the value of the company's aluminum assets are higher than the current share price suggests.
OTHER UPGRADES:
HSBC upgraded Ride Aid (NYSE: RAD) to Neutral from Underweight.
MOST NOTEWORTHY: Toll Brothers (TOL), COTT Corp (COT), Tim Hortons (THI) and Linktone (LTON) were today's noteworthy downgrades:
Banc of America downgraded shares of Toll Brothers (NYSE: TOL) to Sell from Neutral, citing expected deterioration in luxury sales due to mortgage distress in the marketplace.
COTT Corp (NYSE: COT) was cut to Hold from Buy at Stifel, citing the difficult macro environment and continued profit declines.
Tim Hortons (NYSE: THI) was downgraded to Neutral from Buy at Goldman, citing valuation, and notes that fundamentals remain favorable.
Montgomery cut Linktone (NASDAQ: LTON) to Hold from Buy, citing the sudden decline in its wireless VAS revenues following Q2 results...
Bill Miller, the famed Legg Mason fund manager, was on television last week. He said he is long on housing stocks.
In Barron's Up and Down Wall Street column (subscription required), Doug Kass of Seabreeze Partners said he was short housing stocks - no big surprise there. Kass referred to order cancellation as the reasoning for his bearishness.
Typically, publicly traded homebuilders have cancellation rates of 15% of orders. However, that number has jumped considerably. Cancellation rates of publicly traded homebuilders:
These numbers (from the Barron's article) are so bad that the worst might be unfolding right now.
TheFly's advice, Miller tends to be too early and Kass is often too negative when the worst is already priced in the stocks. I'd say, start following these stocks again, expecting a bottom in the spring and early summer.
The most recent rally is mostly from an oversold condition. I'd wait for another correction and see where the industry fundamentals stand.
MOST NOTEWORTHY: Sovereign Bancorp (SOV) and the Homebuilders sector topped the upgrade list today.
Citigroup upgraded Sovereign Bank Inc. (NYSE:SOV) to Hold from Sell with a $25 target, citing expectations for management to announce a larger cost-cutting program in January of 2007.
Bank of America upgraded the Homebuilders sector to Neutral from Cautious after their survey showed traffic improvements in 33 of 39 markets in November relative to October; They do not expect a smooth trend, instead, the firm expects to see choppiness in the market for the next 12-24 months.
In conjunction with the sector upgrade, Bank of America upgraded Standard Pacific (NYSE:SPF) to Buy from Neutral,
and Meritage Homes Corp. (NYSE:MTH), NVR Inc. (NYSE:NVR), Pulte Homes Inc. (NYSE:PHM), The Ryland Group Inc. (NYSE:RYL) and Toll Bros. Inc. (NYSE:TOL) to Neutral from Sell.
OTHER UPGRADES:
Sanofi-Aventis (NYSE:SNY) was upgraded to Overweight from Neutral at HSBC.
SAP AG (NYSE:SAP) was added to Merrill Lynch's Europe 1 list.
Standard Pacific (NYSE: SPF) and Skyworks Solutions (NASDAQ: SWKS) top today's extensive list of upgrades.
Standard Pacific Corp. was upgraded to Outperform from Neutral at Credit Suisse. The firm considers SPF a clever land purchaser and a quality builder.
Skyworks Solutions Inc., the developer and manufacturer of semiconductors for wireless communications products, was upgraded by four firms this morning: To Neutral from Underperform at Credit Suisse, to Buy from Hold at Stifel Nicolaus, to Market Perform from Underperform at BMO Capital Markets and to Buy from Neutral at Pacific Growth Equities. Skyworks announced a corporate restructuring and reaffirmed Q3 guidance.
OTHER UPGRADES:
American Tower Corp (NYSE: AMT) was added to J.P. Morgan's Focus List this morning. The upgraded was based on valuation, multiple expansion and catalysts including a stock buyback plan and the potential removal of the stock options accounting overhang.
Lehman Bros. is positive on Apache Corp.'s (NYSE: APA) international opportunities and upgraded them to Overweight from Equal Weight.
Scientific Games Corp (NASDAQ: SGMS) was added to Goldman Sachs America's Conviction Buy List. The firm is positive on the Global Draw deal that they believe will expand capabilities into video lottery.
Merrill Lynch upgraded St. Jude Medical Inc. (NYSE: STJ) to Buy from Neutral on the belief they will continue to take market share away from Boston Scientific (BSX).
Homebuilder Standard Pacific (NYSE: SPF) got its start in 1965 and benefited nicely from the recent housing boom in California. But, of course, the past couple years have been brutal. The stock has plunged from $22 to $3.50. 
TheStreet.com's Jim Cramer says most people -- including the Fed governors -- haven't spotted this market Achilles heel.
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