AmEx slipped Thursday — but financials had led Wednesday's market rally. David Lutz, managing director at Stifel Nicholaus, recommended that investors take a closer look at the financial space.
The financial sector, which was down 17 percent in August, according to Lutz, rebounded sharply after Tuesday's homes sales data alieviated concerns about capital raises in the industry.
However, he warns that the space may face "a longer and slower recovery," citing declines in the quality of credit and increasing regulations.
"We wouldn't necessarily play the names that have gotten the most beat up," Lutz told CNBC. Instead, he recommended companies that have repaid TARP, maintained strong loan loss reserves and are best positioned to increase dividends. He likes Wells Fargo, USBancorp and PNC Financial.
He added that Wells Fargo, with its high leverage to the housing trade, has the most upside if the housing market stabilizes.
He also recommends agriculture stocks and commodities, noting that sugar, coffee and wheat are near record highs, and he expects this upward trend to continue.
"As risk is coming off in the market, that is going to depress the dollar," Lutz said. "The dollar is obviously a safe haven for risk. As the dollar goes down, prices of commodities go up." He highlights Agco, which he estimates could reach $60.00 by next year.
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Stifel Nicholaus has or may seek an investment banking relationship with the companies mentioned.