Trading Nation

The Fed may have just made this sector a big bargain

VIDEO2:1002:10
Trading Nation: Bank stocks slammed

Financial stocks got slammed on Friday, one day after the Federal Reserve announced that it would not be raising interest rates in September. However, one trader says that the drop could have just made bank stocks a very attractive buy.

"Right now they've been beaten up but they're actually trading at very attractive valuations at about 13 times forward earnings," Erin Gibbs of S&P Capital IQ said Friday on CNBC's "Power Lunch." "This is one of the lowest valuations we've seen in the major support levels in the past three years."


The S&P 500 financial sector fell 2 percent Friday, with bank stocks leading the way down. But despite uncertainty about the timing of an eventual rate hike, Gibbs said she sees a lot of potential for bank stocks to soar in the long term.

"When you look at analyst target prices, we're looking at an average upside of 17 percent of where the stock price is now versus the target price," Gibbs said.

Read More Market fear rises after Fed non-move

Technical analyst Ari Wald of Oppenheimer also said he sees a turning point for financial stocks on the horizon.

"Near term, we see the volatility persists in this group, but longer term we like the potential," Wald said Friday. "We think that you get the ultimate inflection in this group in the next cycle."

Wald likened a potential turnaround for the financials sector ETF, XLF, to that of technology in the years following the tech bubble burst. The information technology sector is the best performer of the S&P 500 this year, and was down about 3 percent year to date on Friday.

Read More This sector is in desperate need of a rate hike

"If you look at XLF relative to the market, obviously the big destruction during the last bear cycle into 2008 has spent this cycle now stabilizing," Wald said. "It doesn't become a leader until I think you need a cyclical reset here."



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