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Banks hit record profits: Time to buy?

With banks posting record profits, some investors are wondering whether it's time to invest in financial stocks. The answer depends on who you ask.

Brett King, author of "Breaking Banks," is bullish on certain banks that meet the right criteria.

"I'm looking for banks who are bullish on mobile and investing heavily in that, are looking to downside their footprint or branches and their branch numbers and have a dedicated innovation fund," he said Wednesday on CNBC's "Closing Bell."

The banking industry's profits were boosted by the fastest increase in lending since the Great Recession, The Wall Street Journal reported earlier this week. Banks posted $40.24 billion in net income in the second quarter, the second-highest level in at least 23 years and just below the record $40.36 billion in the first quarter of 2013, according to the newspaper, which cited data from the research firm SNL Financial.

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More than a billion customers can come into the system via mobile banking, King noted. "The potential for growth in the banking sector based on the smartphone is huge."

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He likes BBVA and Barclays.

King would also look at "edge opportunities" where some elements of banking are being "picked away at." Both Square, which was recently acquired by Simple, and Amazon have announced new payment initiatives.

Those edge opportunities also include the peer-to-peer lending market and Lending Club, which is expected to go public later this year. He'd also look at companies that provide alternatives to issuing debit cards via mobile apps like GoBank, a brand of Green Dot Bank, and American Express and its Bluebird accounts.

However, Michael Gayed of the Beta Rotation Fund is underweight the financials.

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"As much as there's a lot of hoopla about this increased lending and profitability, all the lending in the world is not going to matter if Treasurys are right about growth and inflation going forward given this flattening of this yield curve," he also said on "Closing Bell."

He noted that if anything happens in Europe, it will negatively affect U.S. financial institutions. Right now, he said, European banks have been very bad performers in the post-negative-rate environment.

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"When you look at market movements and the behavior at various areas of the marketplace on a forward-looking basis, banks are not really the place to be," Gayed said.

For King, it's about making the right call.

"That's why you've got to pick the winners. … If you are looking at retail banks you've got to look at banks that are re-engineering the way they engage customers," he said.

—By CNBC's Michelle Fox

Disclosure: Michael Gayed owns XLF in his fund. Brett King owns Bank of America.

Correction: This version has been updated to reflect that Square was recently acquired by Simple.