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CONSTRUCTION and tech stocks look increasingly promising despite a possible market correction, says DMG & Partners. Its top picks include CSC Holdings and Armstrong Industrial.
In its small/mid-cap weekly report, DMG says a healthy flow of government projects means construction firms will probably see earnings recover next year.
Also, strong results and encouraging outlook for US tech bellwethers such as Intel and IBM spell positive news.
'I suspect the small caps will surprise on the upside,' says DMG analyst Terence Wong.
DMG's bullish view comes after the Small Cap Index chalked up an impressive 23 per cent gain last month and is now trading at a 10-month high.
Since the start of the year, the STI, Mid Cap and Small Cap Indices have surged between 45 per cent and 69 per cent - and DMG sees a correction in the near future.
'In the near term I am cautious chiefly on cyclical property and advise investors to instead look at value recovery plays or small-cap technology companies,' says Mr Wong.
Under construction plays, DMG reckons CSC Holdings, Singapore's largest piling contractor, looks attractive thanks to possible strong orders on the back of mega infrastructure projects. These include the Marina Coastal Expressway, Singapore Sports Hub and MRT Downtown Line II.
Estimated orders from these projects stand at $213.5 million - more than double the current $110 million order book.
'In addition, many residential projects are slated to be offered in the coming two years, a result of massive number of en-bloc sales done in 2007, but delayed due to the tepid economy,' says DMG.
The brokerage has set a target price of 29 cents for the stock - up from its 20.5 cent close yesterday.
Other companies that will ride on the recovery story include logistics player CWT and communications design firm Kingsmen Creatives, DMG believes. Target prices are 66 cents and 71 cents respectively.
Under technology plays, DMG has upgraded its calls and target prices on foam/rubber specialist Armstrong Industrial (target price 29 cents) and satellite communications distributor NeraTel (39 cents).
'Besides the improving outlook, they will also be supported by strong yields, particularly NeraTel,' says DMG.
'It has consistently dished out at least three cents per share, which works out to a yield of 10 per cent.'
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