Assessing the current conditions of the capital markets, I am always searching for the next bullish sector. Heading into 2010, I believe Construction and engineering will be a bullish sector and this is why.

Why Construction and Engineering will be a Bullish Sector?

In 2010, I foresee the sluggish global economy picking up its pace and an increase in spending on capital projects. In my opinion, China will continue to spend billions on infrastructure to maintain their world dominance. I foresee the Middle East, Africa, and Eastern Europe to pledge billions to the construction of infrastructure projects to energize growth in their developing regions. Finally, I believe Brazil will lead a resurgence in capital spending across the board in Latin America as they prepare for the 2016 Olympics. In 2009, construction equipment orders have kept stable and have continued to increase due to the large amount of global infrastructure demand. I have no reason to believe that this would not continue to increase throughout 2010. To better the situation, I believe that credit conditions should lighten up allowing for a large amount of delayed construction projects to begin operations again. With recent increases in oil and gas prices, I expect us to see a gradual rebound in oil and gas projects as well. I also anticipate the U.S. to increase its capital spending for highways, tunnels and bridges in 2010 aided by Obama’s $787 billion economic stimulus package and federal/local spending.  Going against these predictions are theories that the global markets will continue to struggle. I disagree, for one we have seen great strides recently in the improved economic forecast. As for the sector itself, most major oil companies have already increased capital spending plans as oil is back over $80 a barrel. In the New Year, I expect capital markets to lighten up allowing more lending to take place. Building off this, acquisitions activity should increase as companies have access to lower borrowing rates and attractive multiples. Overall, we are seeing a resurgence in capital projects which helps the markets across the board as demand for commodities and resources will increase. As you have read I am bullish on both the energy sector, especially Oil and Natural Gas as well as construction. To read my past articles on Natural Gas and Oil click on the links. Moving on, here’s a list of top construction and engineering stocks to invest in.

What Stocks to Buy

Bucyrus International (BUCY)

Caterpillar (CAT)

Dresser-Rand Group Inc (DRC)

Fluor Corporation (FLR)

Foster Wheeler (FWLT)

Honeywell International (HON)

Jacobs Engineering Group (JEC)

Meritage Homes Corporation (MTH)

The Boeing Company (BA)

USG Corporation (USG)

For those of you who own USG Corporation and bought it when I advised must be loving the gains especially after yesterdays jump. The stock surged 28% yesterday and has now gone up 65% in a little under two months. USG is now trading at $19.64 which is above my 12-month target of  $19 per share. I still think the stock has room to grow based on the increased 2010 expectations. Also, USG has seen an increase in home improvements in 2009 with more to come in 2010 raising the earnings expectations of the company.  Adding to this I like USG’s aggressive cost cuts and as a result I expect an upturn in sales leading to profitability in 2010. My original buy recommendation for USG where based upon attractive valuations, long-term prospectives within the sector, little debt, and due to USG’s below market P/E they have a very attractive upside potential. Now however with the recent surge I am pulling out half of my position and taking the profits. The valuations are no longer as favorable and some are wondering whether or not the stock has peaked. Adding to this increased risks on whether or not USG will have enough capital to supply projects adds concerns to the stock. Overall, sell half and ride out the other half.