How to Play California’s Housing Rebound

California, one of the worst-hit parts of the US during the downturn, is coming back to life, Cramer said Tuesday. The state’s population is growing again, its major ports are getting busier, and, yes, home prices in the Golden State are rising. He’s so excited about California’s prospects that he’s offering up a different way to play them all week.

• Cramer's Top 12 Retail Stocks

Monday was retail, where he recommended Costco , but today’s show focused on housing. In addition to that home-price stabilization, Cramer noticed another major change: homebuilders are building again.

According to a research note from J.P. Morgan, March inventories were up 8%. These companies wouldn’t build new properties unless they could sell them, Cramer said. And with inventory levels in the state still way below their peaks, there’s plenty of room to expand and sell some more.

So how do you play housing in California? Much the same way Cramer approached retail there: look for companies with at least 25% exposure to the state. That qualifies KB Home , with 38% of its end-of-2009 backlog in California, Lennar with 25% and Standard Pacific with 56%.

Standard Pacific may be the most speculative – it trades under $5 and is up 373% over the last 12 months – but it’s Cramer’s favorite of the group. The company fell as low as it did because it operates in the ground-zero states of the real estate collapse: California, Arizona and Florida. Things got so bad for SPF that it was forced to take some huge impairments on 59% of its assets and needed an equity infusion from private-equity firm Maitlin Patterson to stay afloat.

But things have changed for Standard Pacific, Cramer said. Its gross margins are back up to 20%, compared with 13% in 2008. The prices of its homes have increased an average of 5% in California. January sales were up 10% year-over-year. And the company is now expanding beyond its core areas, buying up huge tracts of land on the cheap.

Despite all this, analysts remain bearish, with two of the seven covering SPF rating it a “buy,” compared to three “holds” and two “sells.” But that just means the stock can shoot higher, Cramer said, as these bears convert to bulls. He recommended getting in ahead of that.

“The rebound in this state is for real,” Cramer said of California, “and I think you should play it with a turnaround homebuilder like Standard Pacific.”

Cramer's charitable trust owns Costco.

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