BCA Bullish on Construction, Cable Sectors

Investors looking to brave the U.S. equities market have a few options in the construction and cable and satellite sectors, the latest BCA Research strategy note says.

The construction and engineering sector, which includes Fluor Corp. (FLR) and Jura Energy Corp., is poised to break out, the Montreal-based research company said in a note Tuesday.

"The industry’s flexible cost structure has come to the fore as sales continue to rise relative to industry employment, underscoring that productivity remains high," the note said. Global infrastructure spending will also help offset any temporary loss of energy contracts, leading BCA to continue the sector's "overweight" rating.

The research company is also bullish on the U.S. cable and satellite sector, after the switch to all-digital TV signals last week has opened up new marketing opportunities for operators.

"The S&P cable & satellite group’s relative performance has yet to reflect this potential earnings boost," the note said. Cable profits are expected to be resilient, but price to cash flow ratios are still slumping so BCA recommends an "overweight" while holding a long view on cable and satellite.

On the other hand, BCA is less than impressed with the strong spring performance of the retail sector, arguing "retailing stocks have run way ahead of themselves" and "earnings expectations have become far too optimistic."

There is concern that rising unemployment will stunt income and spending. This drop in spending may also cause a sustained "margin squeeze" as retailers are forced to pull back from a decade-long capacity expansion.

"Looking forward, smaller is going to be better and selective positioning within the retailing industry is warranted," BCA said.

The company suggests investors stick with computer and electronics and food retailers, and go to "underweight" for everything else.