Jacobs Engineering Group Inc (JEC), PulteGroup, Inc. (PHM): Shareholders Have Oversold Lennar Corporation (LEN)

Comparing Lennar to the others
The unjustified sell-off of a company capitalizing on still-cheap land prices in an industry that’s just beginning to turn around makes Lennar worth a look, but it won’t tell you whether it is better than its peers. After scouring construction companies, two caught my eye; each has a fundamental flaw that leaves Lennar looking like the best in class.

Let’s open the books of Jacobs Engineering Group Inc (NYSE:JEC), one of the more typical construction firms. It has increased in price by about 50% in the last year, but hasn’t really done anything to justify that surge. Jacobs Engineering Group Inc (NYSE:JEC) has maintained a profit margin of around 3% to 5%, and investors seem to like that steadiness. But the company is not investing in the future like Lennar Corporation (NYSE:LEN).

Now consider PulteGroup, Inc. (NYSE:PHM), whose price has increased by about 22% over the last year. The company’s inventory has actually dropped off, even as it should be preparing for an industry spending frenzy. Lennar’s, in contrast, has surged. Take a look at the chart below, and decide which company is likely to benefit from the upcoming construction boom.

LEN Inventories data by YCharts

Final thoughts
Surely, Jacobs Engineering Group Inc (NYSE:JEC) and PulteGroup, Inc. (NYSE:PHM) must know they are about to embark on a few years of supercharged construction projects throughout the U.S. But their efforts to prepare themselves suggest they simply don’t have the capital.

Smart people run these companies, so it is not like they don’t have a beat on the nuances in the industry. What they likely don’t have, however, is the financial backbone to increase inventory (for reasons that may not be obvious to the public) during a time when the construction market may experience its largest growth in decades.

Due to Lennar’s ability to accumulate inventory, it could be the company spearheading many of the anticipated construction projects. And with its share price rising much slower than its sector peers, this could be the one to achieve the most gains in the years ahead.

The article Shareholders Have Oversold Lennar originally appeared on Fool.com and is written by Phillip Woolgar.

Phillip Woolgar has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.