market folly

At Invest For Kids Chicago yesterday, Barry Sternlicht of Starwood Capital Group gave a presentation on going long.

Be sure to check out all notes from Invest For Kids Chicago where numerous high profile hedge fund managers shared their latest investment ideas.


Likes Lowe's, Toll Brothers, NVR

Sternlicht is a successful real estate and hotel investor who founded Starwood Capital Group in 1991 and has structured 40 transactions. He says themes to invest behind right now are residential land as it's a contrarian bet and return of the US residential market is a question of when, not if. During 2007 to 2009, household formation fell well below the historical trend.

He says the problem is appraisals because of distressed sales when bank dump properties. Housing affordability is a good thing and we're building 3800-400k new homes when the real need is around 1-1.2 million. When people finally start to move there will be "pent up demand."

He likes certain homebuilders such as : Toll Brothers (TOL), Lennar, DR Horton, and NVR (NVR). TOL is his favorite along with NVR, which has limited inventory and turns its inventory better (Ryan Homes).

He says to avoid Beazer (BZH) and Hovnanian (HOV) because they could go bankrupt depending on how long the turnaround takes. This is interesting because Avenue Capital's Marc Lasry said he was long Hovnanian bonds at the same conference.


Lowe's (LOW): Sternlicht also likes LOW because the company owns 90% of its stores and benefits from housing demand. It has a diverse revenue stream and the internet can't replace things like home remodels because you need to see in-person what you're purchasing.

He notes that management is willing to repurchase 70% of share buybacks in 4 years (reminds him of Teledyne). The company is free cashflow positive and has a 2.5% dividend yield and trades at 6.5x EV/EBITDA. Pershing Square's Bill Ackman also likes LOW he revealed at a different conference yesterday.

You can view full notes from Invest For Kids Chicago here.