Rising rates have some traders running all the way to the bank.
The financials have broken out in the past three months, making them the second-best performing sector over that period, rallying 2 percent while the broader index is up less than half a percent. But the move higher in the banks has some traders hitting the pause button.
"I would say it might be time to take your money and look for better opportunities or values elsewhere," analyst Erin Gibbs said Wednesday on CNBC's "Power Lunch." "When looking at historical P/E ranges or potential upside of the stock against analyst target prices, banks are closing in on both top-end ranges and target prices."
According to Gibbs, the financial sector is only 1.5 percent away from the average analyst target price. "That really says a lot about where Wall Street thinks the stocks could go."
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But despite the high valuation, Gibbs said the earnings picture for the banks remains positive, and that will help drive the space.
"From an earnings perspective, banks are looking at one of the highest-growing earnings for industries in 2015 and the next year. Even though valuations are looking a little toppy, you have good earnings expectations which could keep pushing them higher," said Gibbs, equity chief investment officer at S&P Capital IQ. "I would suggest refining an investment to diversified banks or regional banks."
Rising rates have helped the banks because they allow them to lend at more profitable rates. And as the difference between short-term and long-term rates expands, the banks should continue to benefit.
"Banks borrow short and lend long so as that net interest margin expands, it becomes more profitable for the banks, in particular in the small banks," said Larry McDonald, head of the U.S. macro strategies group at Societe Generale, also on "Power Lunch."
In the past month, as the yield on the U.S. 10-year has surged to 2.3 percent, the best-performing stocks in the financial sector are Zions Bancorporation, Assurant and Goldman Sachs, up 8.5, 6 and 5 percent, respectively.
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