Buy U.S. bank stocks, short Canadian banks

In a new note, the Montreal-based independent investment research firm reports that its global investment strategy service is recommending going long on U.S. financials, while shorting their Canadian peers, given the divergent dynamics between the two countries housing markets.

"The U.S. residential market is recovering briskly from very depressed levels while the Canadian housing market looks increasingly vulnerable, with record amounts of household sector debt," it says, noting that the Canadian household debt-to-income ratio has surpassed the levels that were reached in the U.S. back in 2007, which was when the U.S. housing market peaked.

"It appears that the secular downturn in American banks has ended," BCA concludes. "Canadian banks are set to underperform, especially if the Canadian housing [market] weakens."