Credit-card stocks are the best way for investors to get into the comeback in the financial sector, says Donald Fandetti, Citigroup specialty finance analyst.
"We think the outlook for credit cards is good given the early signs of loan growth, coupled with good economic data," he says.
Currently, Visa is outperforming the KBW bank indexby double digits. MasterCard was up nearly 50 percent over past 12 months.
But consumer finance giant Capital One is Citigroup's top pick. "You are seeing investors incrementally more interested in financial stocks," he said, adding, "We want to capture that with Capital One."
Citigroup also likes American Express , raising its price target to $60.
"American Express does focus on the more affluent, and we're seeing very strong data coming out of the more affluent segment," says Fandeti.
Banks, he adds, are a riskier bet, given their broader mortgage and loan exposure.
Todd Hagermann, managing director at Sterne Agee, takes it one step further, saying in the same interview, "Banks are at the bottom of our list."
Sterne Agee downgraded JP Morgan Chase in December 2011, and continues to shy away from broker-dealer names.
"Right now we're sticking with quality baskets on the regional end of the spectrum. Their capital levels, are good, and they're operating in growth markets outside of depressed mortgage areas, " says Hagermann.
Hagerman likes: PNC Financial , Wells Fargo , BB&T, and US Bancorp.
Skeptics say the credit-card play is limited, given that debt is still growing faster than income levels in America.
It is a critique Fandetti concedes, but counters: "The undertone here is that with the improving economy, you'll see loan growth, and growth in consumer card receivables. We're looking at 2 percent, in line with GDP levels."
CNBC Data Pages:
Todd Hagerman does not own stock in the aforementioned companies. His firm, Sterne Agee & Leach makes a market in the shares of BAC, BBT, C, FITB, JPM, and PNC. Donald Fandetti does not own the stock in specialty financial companies, but Citigroup has V, MA, COF, and DFS as investment banking clients.