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The Fed may have just made this sector a big bargain

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 MoreMarket 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 MoreThis 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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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Brian Sullivan

Brian Sullivan is co-anchor of CNBC's "Power Lunch" (M-F,1PM-3PM ET), one of the network's longest running programs, as well as the host of the daily investing program "Trading Nation." He is also a frequent guest on MSNBC's "Morning Joe" and other NBC properties.

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