- By James Li
According to the Joel Greenblatt (Trades, Portfolio) Magic Formula Screen, a Premium feature of GuruFocus, five construction companies that have a GuruFocus business predictability rank of at least three stars and high earnings yield and return on capital are MasTec Inc. (NYSE:MTZ), Carlisle Companies Inc. (NYSE:CSL), EMCOR Group Inc. (NYSE:EME), Quanta Services Inc. (NYSE:PWR) and Trex Co. Inc. (NYSE:TREX).
Peter Lynch Chart of MTZ
Employment declines in December while coronavirus cases accelerate
On Friday, the Bureau of Labor Statistics said total nonfarm payrolls declined by 140,000 in December, reflecting the recent increase in Covid-19 virus cases and efforts to contain the pandemic. Economics surveyed by Dow Jones expected an increase of 50,000 jobs.
According to Johns Hopkins University statistics, coronavirus cases in the U.S. topped 21.6 million, including over 365,000 casualties.
Job growth in professional and business services, retail trade and construction offset job losses in leisure and hospitality and private education. Even though jobs in construction remain 226,000 below the February 2020 level, the construction sector added 51,000 jobs during December 2020.
As such, investors may find opportunities in construction companies that have high business predictability, earnings yield and return on capital. Greenblatt, manager of Gotham Asset Management, developed a "Magic Formula" in which he invests in the stocks of companies with the highest earnings to enterprise value ratios and earnings to net working capital ratios.
MasTec engages in a wide range of construction activities, including engineering, building, installation, maintenance and infrastructure upgrades. GuruFocus ranks the Coral Gables, Florida-based company's profitability 8 out of 10 on several positive investing signs, which include a Greenblatt return on capital that outperforms 83.09% of global competitors and an operating margin that has increased approximately 23% per year on average over the past five years.
Gurus with large holdings in MasTec include Chuck Royce (Trades, Portfolio)'s Royce Investment Partners, Ronald Muhlenkamp (Trades, Portfolio)'s Muhlenkamp & Co. and Louis Moore Bacon (Trades, Portfolio)'s Moore Capital Management.
Carlisle Companies manufactures and sells rubber and plastic engineered products. GuruFocus ranks the Scottsdale, Arizona-based company's profitability 8 out of 10 on the back of three-year revenue and earnings growth rates outperforming over 80% of global competitors.
Additionally, Carlisle's Greenblatt return on capital outperforms 80.29% of global construction companies.
Gurus with large holdings in Carlisle include Jim Simons (Trades, Portfolio)' Renaissance Technologies and Tweedy Browne (Trades, Portfolio).
EMCOR provides a wide range of electrical and mechanical construction services. GuruFocus ranks the Norwalk, Connecticut-based company's financial strength and profitability 7 out of 10 on several positive investing signs, which include a high Piotroski F-score of 7, expanding operating margins, a Greenblatt return on capital that outperforms 81.92% of global competitors and a Beneish M-score that suggests little or no potential earnings manipulation.
Quanta Services provides specialty contracting services and infrastructure solutions for the electric power, energy and communication industries. GuruFocus ranks the Houston-based company's profitability 8 out of 10 on several positive investing signs, which include a 4.5-star business predictability rank, a Greenblatt return on capital that outperforms 70% of global competitors and three-year revenue and earnings growth rates outperforming over 82% of global construction companies.
Trex manufactures wooden alternative decking products. GuruFocus ranks the company's profitability 9 out of 10 on several positive investing signs, which include a Greenblatt return on capital that outperforms over 88.64% of global competitors and an operating margin that has increased approximately 9.60% per year on average over the past five years.
Disclosure: No positions.
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This article first appeared on GuruFocus.