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Power Play: Picking the right financials for your portfolio

The Citigroup Center in midtown Manhattan is shown in this July 14, 2014 photo.
Timothy A. Clary | AFP | Getty Images
The Citigroup Center in midtown Manhattan is shown in this July 14, 2014 photo.

Many strategists are expecting financials to do well in a higher interest rate environment, but you have to add the right ones to your portfolio.

Jeffrey Saut, chief investment strategist at Raymond James, tells CNBC's "Power Lunch" on Friday, financials are cheap, have decent dividends and are ripe for M&A activity, but he does not believe big banks will buy the little banks. "The big guys won't do it because of regulation. Regional banks will buy the little banks, but they will overpay," Saut said.

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Because of this view, Saut is long little banks and short regionals.

He also likes the big banks. "Buy big banks too because of the steepening of the yield curve," Saut said.

Citigroup is one of his picks in this environment.

Shares of Citigroup trading down one percent on Friday, but are up 18 percent over the past year.