Lennar Corporation (LEN), PulteGroup, Inc. (PHM): Four Reasons to Build Your Portfolio With This Stock

Another key reason investors should consider adding Lennar to their portfolio is, Lennar is simply the best when it comes to backlog growth. In the last three months, Lennar reported a 76% increase in backlog revenue, which was better than the 69% increase from Toll, 52% at PulteGroup, Inc. (NYSE:PHM), and the 19% increase at KB Home (NYSE:KBH). Lennar also reported stronger unit growth than their peers with a 55% increase in units. By comparison, only Toll Brothers Inc (NYSE:TOL) came close with a 52% increase, but Pulte and KB Home (NYSE:KBH) couldn’t keep up with increases of 35% and 6% respectively.

The fourth reason to consider Lennar might at first seem like a weakness until you put the numbers into proper perspective. Lennar’s cancellation rate was 14% in the current quarter. While it’s true that Toll Brothers Inc (NYSE:TOL)’ cancellation rate was just 3.4%, the comparison is a bit unfair. Toll Brothers Inc (NYSE:TOL) average selling price is significantly above $500,000, whereas the rest of these companies’ average selling price is closer to $300,000.

Among their $300,000-and-under peers, PulteGroup, Inc. (NYSE:PHM) doesn’t report a cancellation rate, and KB Home (NYSE:KBH)’s cancellation rate of 25% is significantly worse than Lennar’s. With PulteGroup, Inc. (NYSE:PHM) and KB Home’s backlog growth coming in lower than Lennar, their questionable and higher cancellation rates mean Lennar is the leader of the pack.

The investment case for Lennar is very simple. It is growing fast in the mainstream housing market just as the housing market is beginning a long-term recovery. The company’s relatively lower cancellation rate means more of these homes will be sold. Lennar’s higher operating margin means the company should keep more of these sales as earnings. When you add in the company’s strong increase in selling prices, investors have a right to expect big things. Smart investors looking to capitalize on the housing market should add LEN to their Watchlist immediately.

The article 4 Reasons to Build Your Portfolio With This Stock originally appeared on Fool.com and is written by Chad Henage.

Chad Henage has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Chad is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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