Financial stocks have been higher this week—so how will the sector be affected by new regulation and the Fed’s exit strategy?
Chris Mutascio, managing director and bank analyst at Stifel Nicolaus and Fred Cannon, co-director of research and chief equity strategist at KBW discussed their sector outlooks.
“The financial reform overhang is creating a positive opportunity for some of the higher quality large banks right now,” Mutascio told CNBC. “We think there’s going to be more bark than bite and that creates an opportunity to trade up from lower quality to high quality right now at pretty reasonable valuations.”
Mutascio likes Wells Fargo and Bank of America .
In the meantime, Cannon agreed that the large banks are still the place for investors to be. He has “buy” ratings on JPMorgan , Bank of America, and UBS . However, he advised investors against Citigroup .
“When you talk about normalized earnings, it looks like a long way away in the future for Citi,” he explained. “They’ve got a long workout ahead of them and we think right now, go to the names that can producing good earnings and capital momentum next year.”
In addition, Cannon said some of the regionals that are actively buying up the failed banks will also perform well.
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Mutascio has investment banking clients who own shares of WFC and BAC. Stifel Nicolaus or an affiliate managed or co-managed a public offering of securities for WFC and BAC in the last 12 months. Also in the past 12 months, Stifel received compensation for investment banking services from WFC and BAC and expects to receive compensation for these services in the next three months. BAC and WFC or affiliates were clients of Stifel or an affiliate within the past 12 months. In addition, Stifel maintains a business relationship with WFC.
Cannon does not own shares of JPM, BAC, UBS, GS, MS or WFC.