By Murray Coleman

New Constructs, the highly rated Nashville-based independent securities researcher, says in a report Friday that it views tech as the most attractive sector as the fourth-quarter unfolds.

Its top two picks at the moment for playing the sector via ETFs are the ProShares Ultra Semiconductors (USD ) and the First Trust Nasdaq Technology Sector (QTEC ).

To evaluate funds, the firms CEO David Trainer and his analysts break down each portfolio on a stock-by-stock basis. Then, they consider how a fund divvies up those assets among the most attractive names.

The firm bases its stock ratings on earnings quality, cash flows and valuations. In the latest Barron’s-Zacks stock-picking competition,  New Constructs came in second over three years. It has consistently done well in the contest over the years.

The leveraged USD has 79% of its portfolio currently allocated to attractive stocks, says New Constructs. QTEC is the next-best with 71& in techs best companies, the firms analysts report. Also, both have very small amounts in unattractive names, according to Trainer.

The fundamentals of these businesses are very strong theyve got the highest returns on capital and cheap valuations, he said in an interview.

Tech companies are generally better positioned than most to use cutting edge products and proprietary development tools to create barriers to entry that can squeeze more growth in a slower-growth macro environment, Trainer added.

The fundamentals of tech businesses are generally very strong theyve got the highest returns on capital and cheap valuations, he said.

In technology, New Constructs suggests that ETF investors look underneath the hood of their favorite funds. Trainer says that some of the best names in the sector right now include:

• Apple (AAPL ): They have the highest return on capital of all large-cap stocks, tech or non-tech, he said. For every dollar they put into their business, they get $2 back per year. Most people are happy with 15-20 cents on the dollar.
• Google (GOOG ): With a 44% annualized return on capital and a market valuation that implies almost no future profit growth, New Constructs finds the tech giant with very low expectations and high growth potential, said Trainer.
• Microsoft (MSFT ): One of his favorites with 72% return on invested capital, the software maven also boasts a valuation that implies a permanent 30% decline in its profits, Trainer notes. Even if you expected zero growth, the implied value of Microsofts shares are slightly over $37, said Trainer. The stocks trading up Friday by 0.4% at $26.45 a share.

Hes also favoring at the moment: Accenture (ACN ) and Research-In-Motion (RIMM ) and Oracle (ORCL ).

We dont love all tech stocks. But compared to other sectors, tech has more large caps that are way oversold at this point, said Trainer. Wed recommend in tech that people stay away from small-caps, though.

New Constructs says its models are updated daily.

KBW: Buy NYX, NDAQ, KCG; Q3 EPS Looking Up For ICE, CME Next

Gold, Silver React To Downgrades Of Spain, Italy Just Like Stocks