- "Mad Money" host Jim Cramer argued that deregulation could give stocks like Citigroup and Bank of America even more room to run.
- Despite the bank stocks' parabolic moves, Trump's administration and new Federal Reserve chair could bring even more benefits to the cohort, Cramer said.
CNBC's Jim Cramer hates parabolic moves, like the one he noticed in bitcoin's rapid surge on Wednesday.
"I particularly despise parabolic rallies, the kind with a huge upward slope, when you see them in slower growing industries. There's a word for that kind of action, and the word is 'unsustainable,'" the "Mad Money" host said. "Yet that's exactly what's been happening with the bank stocks in the last 72 hours, parabolic moves that seem hard to justify based on the numbers."
The pattern worried Cramer because he knew the bank stocks — namely Citigroup, JPMorgan and Bank of America — couldn't keep going up at this speed. It dragged everything into question: their valuations, their earnings and whether they were safe investments.
Moreover, the XLF, the exchange-traded fund that lumps the financials in a group, makes those details difficult to pin down.
The ETF causes the financials to trade in unison based on how many times the Federal Reserve is expected to raise interest rates, as each hike means more profit for the banks.
"The thing is, they really shouldn't be trading in lockstep," Cramer said. "Some of these banks are dramatically undervalued on certain metrics. For example, [Citigroup's] tangible book value — what it would be worth if you shut down the company and liquidated everything — is just below the current stock price. That's too cheap."
By his fairly conservative estimates, Cramer predicted another 5 percent rise for the XLF based on the possibility for four more rate hikes.
Bank of America would be a particularly big beneficiary of hikes thanks to its large deposit base, which would justify its seemingly inflated valuation. Plus, with the Trump administration unraveling Obama-era regulations on banks, Bank of America's earnings power can go up more than people realize, Cramer said.
"It's very difficult to argue that the stock's expensive. And other than the pricey JPMorgan, I could say the same thing about most of the [bank] stocks: they're still too cheap," the "Mad Money" host said.
"So, sure, you can trim your positions in the banks, since no one likes to be a pig," he continued. "But unlike so many other areas where valuations are getting pretty stretched, I think the financials, on the whole, have room to run, maybe a lot of room to run now that we have a government that's way more pro-banking than any I have ever seen."
Disclosure: Cramer's charitable trust owns shares of Citigroup.