With a new report showing a substantial improvement in bank earnings should you start nibbling at the sector?
Many investors were turning over the possibility after said U.S. bank earnings rose in the first three months of the year to the highest level in nearly five years.
Looking at the numbers, the FDIC said the banking industry earned $35.3 billion in the January-March period. That's up from $28.7 billion in the first quarter of 2011 and the highest level since the second quarter of 2007.
If you have a long-term time horizon, banks are probably worth a look, according to CNBC Contributor Ron Insana. Broadly he thinks they're attractive but Insana is talking over a period of months and years. "If you go into financials, scale into the XLF buying a 25% position each month over the next four months."
However, if you're a short-term trader, Insana says trade the space with caution. “There are so many headwinds, playing banks right now is like trying to catch a falling knife.”
Trader Stephanie Link agrees. From increased regulation to the blossoming woes of Europe, she sees far too many headwinds for short term traders.
If you must put money to work in this space and you're a nimble trader, Guy Adami says take a look at Morgan Stanley. “Off yesterday’s reversal I think Morgan Stanley is interesting with a $12.75 stop,” he says.
Stephanie Link says if you must play the space, look for pockets of strength. “I think USB is worth a look and recently SunTrust said some positive things.”
On a related note, Eagle Fund portfolio manager Kimball Brooker tell us that his top pick in this space is Bank of New York Mellon. “They derive 80% of their revenue from fee oriented businesses – asset servicing business and custody clearing." He suggests that provides some distance from the woes vexing other banks. "And they’re one of the largest asset management companies in the world,” he says.
** Did you know... Bank of New York is the one stock that you can own today that George Washington could have owned when he was President. Click here to go to Wall Street History: NYSE Stock Still Around from G. Washington Era.
Posted by CNBC's Lee Brodie
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Trader disclosure: On May 23, 2012, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Guy Adami is long C; Guy Adami is long GS; Guy Adami is long INTC; Guy Adami is long AGU; Guy Adami is long MSFT; Guy Adami is long NUE; Guy Adami is long BTU; Stephanie Link is long AAPL; Stephanie Link is long JPM; Stephanie Link is long IBM; Steve Grasso is long ASTM; Steve Grasso is long BA; Steve Grasso is long D; Steve Grasso is long FRO; Steve Grasso is long LNG; Steve Grasso is long MHY; Steve Grasso is long MO; Steve Grasso is long PFE; Steve Grasso is long S; Steve Grasso is long XLU; Steve Grasso is long ZAZA
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