Financial stocks got wrecked last week. Here are three names to buy

It was a nailbiter of a week. After sell-offs on Monday and Thursday, the S&P 500 and Dow Jones gave up year-to-date gains and closed its second week in the red for the first time since mid-November.

The financials sector, the darling of January, was swept up in the chaos. For the week, the XLF Financials ETF tumbled 6 percent, its second week in the red. Banks are now down 7 percent for the month, on track for their worst performance since June 2016.

This kind of damage presents an opportunity for investors to buy the dip in banks, says Mark Tepper, president of Strategic Wealth Partners, who is bullish on the sector. Here's why.

  • A more hawkish Federal Reserve ready to raise rates at a faster pace could spook equities markets. But higher rates should help increase bank earnings. Rising interest rates should expand net interest margins.
  • Consumer confidence is close to all-time highs, which should keep consumer financing in good health. Confidence rose in January — it hit its highest mark since 2000 in November.
  • The small-business optimism index is also near all-time highs, which should lead to growth in commercial and industrial loans.

Tepper's favorite picks? J.P. Morgan, U.S. Bank and KeyCorp. Those three are at least 6 percent from their 52-week highs and have price-to-earnings ratios of between 12 to 13 times forward earnings, lower than the S&P 500's ratio of 16 times.

In short, keep calm amid the sell-off and buy the banking dip.

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Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's Closing Bell (M-F, 3PM-5PM ET). In addition, he contributes to CNBC and CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

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