Suddenly, construction and engineering is the new "it" industry. These companies are, as a group, up more than 18% over the past 30 days, thanks to enthusiasm over President-elect Barack Obama's plan to spend billions to create 2.5 million jobs for national infrastructure projects.

Construction stocks rallied big on the first day of trading after the news broke. Caterpillar (NYSE:CAT) was up 11% and Terex (NYSE:TEX) gained 18%. Are there more gains to come? Foolish colleague Seth Jayson, a co-advisor for Motley Fool Hidden Gems, isn't so sure. Quoting from his recent CAPS blog post:

Luckily (!) we are in need of a ton of infrastructure spending in the U.S., money that would go toward needed improvements. But whether or not this can actually help the economy over the next year or so is debatable, with the edge going toward: no. Long run, we need it, but can states spend the money wisely? Everyone talks about the bridge to nowhere, but how much was spend on cul-du-sacs and sewer-pipe to nowhere over the past few years?

It's a question that's at least worth asking. And if it's worth asking, it's also worth having a look at the top construction stocks in our Motley Fool CAPS database. Here, in order, are the five favorite construction stocks right now:

Top Construction Stocks

Recent Price

CAPS Stars (out of 5)

1-Year Return

30-Day Return

Michael Baker (NYSE:BKR)

$36.30

*****

(7.4%)

50.9%

KHD Humboldt Wedag (NYSE:KHD)

$9.63

*****

(68.3%)

8.9%

Sterling Construction (NASDAQ:STRL)

$18.52

*****

(16.2%)

58%

Layne Christensen (NASDAQ:LAYN)

$17.23

*****

(66.3%)

1.3%

Foster Wheeler (NASDAQ:FWLT)

$25.38

*****

(67.7%)

26.9%

Sources: CAPS and Yahoo! Finance, as of Dec. 12, 2008.

Make this stock infrastructure for your portfolio
By the book, Michael Baker should be today's top pick. But have you seen its chart? Check its CAPS profile page. The peaks and valleys remind me of the Colossus roller coaster at California's Magic Mountain amusement park.

Layne Christensen, a leading groundwater services provider, is a better candidate. Foolish colleague Chris Jones says the stock is cheap and he's got numbers on his side: Layne trades for less than seven times trailing earnings, well below the 11.2 average for the industry at large, according to Yahoo! Finance.

But is Layne a better pick than Global Gains recommendation KHD Humboldt Wedag? I don't think so. Hundreds in our 120,000-strong Motley Fool CAPS community would appear to agree:

Metric

KHD Humboldt Wedag

CAPS stars (5 max)

*****

Total ratings

911

Bullish ratings

896

Percent Bulls

98.4%

Bearish ratings

15

Percent Bears

1.6%

Bullish pitches

96

Bearish pitches

1

Note: Data current as of Dec. 15, 2008.

Bears aren't putting up much of a fight, either: "general market decline. reversing calls on some losers till we have some sort of recovery," wrote CAPS investor KatWoman50 in November.

Shares of KHD Humboldt have since recovered some of their losses, but seem destined to recover a whole lot more. "With more than $400 million in cash and equivalents on its balance sheet, against very little debt, the company is trading well below its net cash. Roughly half of that cash is tied to future projects, which, if canceled, would result in a return of cash to its customers," wrote Fool colleague David Lee Smith after KHD reported decent earnings that failed to impress.

Dave's right -- the math is compelling. With an enterprise value of negative $101 million as of this writing, investors value KHD as if half of the roughly $200 million in at-risk cash on its books is already worthless.

Put differently: Assuming a mad rush of order cancellations, enough to force all that $200 million to be returned, the true value of KHD's cash-generating operations would be just $100 million. Hardly seems fair for a business whose order backlog exceeds $800 million, does it?

Not to me, but I'm more interested in what you think. Would you buy KHD Humboldt Wedag at today's prices? Let us know by signing up for CAPS today. It's 100% free to participate.

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