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Is Sunstone Worth the Risk?

What’s the surest sign that a once broken company is now just a broken stock? When the chief financial officer starts buying shares on the open market.

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It is “better than if the CEO had bought,” Cramer said, “better than if every other board member had bought.”

Well, that’s what happened at Sunstone Hotel Investors , a battered hotel REIT that analysts can’t seem to hate enough. CFO Kenneth Cruse just bought 5,900 shares of SHO at an average price of $8.84 for a total of $52,156. Cramer thinks the news could warrant a bit of speculation on Sunstone.

Admittedly, the REIT has seen some hard times of late. Sunstone was forced to deed back 14 of its properties, meaning it stopped paying the mortgage and returned the hotels to the lending banks. Why? Because the properties were worth less than the mortgage principle.

After some research, though, it looks like Sunstone’s turning around, Cramer said. The company reported a better-than-expected quarter in late February that also included occupancy increase in January and year-over-year bumps in revenue per available room. Hotels in general are looking bullish, as was evident when Starwood reported great earnings on Feb. 4, and Cramer thinks the strength will prop up Sunstone as well.

So much so that we may see a reinstatement of the company’s dividend, which had been suspended given all the financial trouble. Sunstone has cleaned up its balance sheet and now has enough money – $4 of cash per share – pay off all its debt maturing through 2015. If the company started returning to shareholders the 31 cents a quarter it paid before suspension, then SHO would yield 12% right now. Also, Cramer doubted that the CFO would buy shares if this wasn’t likely to happen.

The stock is pennies away from its 52-week high of $10.06, but this stock used to fetch well more than $20. Of course, this is a speculation pick, but investors see health returns from the restored dividend alone if Sunstone makes a comeback.

So here’s how you play it: Do your homework on SHO and make sure this is a stock you want to buy. If so, wait for the price to dip $1, which is where the CFO bought his shares.

“That’s the level where this speculative REIT is really attractive,” Cramer said.

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