Buffett: Banks are in the best shape ever

Buffett: Banks in best shape I can remember

Warren Buffett likes banks. In fact, he thinks they're now stronger than they've ever been before.

Speaking to CNBC's "Squawk Box" Wednesday morning, the legendary investor said:

"What counts really is the future. In the future, particularly large banks, they'll have to carry heavier cap which hurts their returns on equity. Banks are in best shape I can remember. They've built cap, loan losses down, portflios are good ... The problem is they have more money around than they'd like; they are not reluctant to loan."

Some of Berkshire Hathaway's largest holdings – including its number one, Wells Fargo – are banks and financial institutions. In turn, Berkshire Hathaway is the second-largest component of the Financial Select Sector SPDR ETF, the XLF.

(Watch: Buffett on JPMorgan: Jamie Dimon will survive fine)

So far in 2013, the XLF has returned 26% to investors versus the S&P 500 index's 21%. Over the past five trading days alone, the XLF is up 5%, a full percent higher than the market index.

"Year-to-date, consumer health care has lead the S&P," says Roberto Friedlander, Head of Equity Trading at Brean Capital. "In the last week or so, we're seeing money come out of utilities, out of that defensive group where it's been safe to park in a low yield, long-term environment and going into financials."

But are banks really a good buy for the long-term and, if so, which ones?

(Read: Buffett's Berkshire gets 'only' $260 million of GE stock)

On Talking Numbers, Friedlander analyzes the banking sector and specifies which kind of banks he feels are good buys given his opinions of where the yield curve is headed. But Talking Numbers contributor Richard Ross, Global Technical Strategist at Auerbach Grayson, believes financial stocks – as represented by the XLF – give him cause for concern.

Should you join Buffett in investing in banks or are the charts' warnings too strong not to heed?

Watch the video above to see Friedlander and Ross analyze bank and financial stocks and here what the fundamentals and technicals have to say.

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