These are the best banks to buy to play the Fed's rate liftoff, Bank of America says

Published Thu, Mar 17 20229:59 AM EDTUpdated Thu, Mar 17 202211:45 AM EDT

The Federal Reserve just started a rate hiking cycle, and Bank of America said a handful of bank stocks could be due for a "Fed liftoff." The central bank increased interest rates by 25 basis points to a range of 0.25%-0.5% on Wednesday, in a highly anticipated move to help address rampant inflation. It marked the first rate increase in more than three years. Investors can expect several more hikes to come. By the end of 2023, the federal funds rate is expected to be around 2.75%, according to the central bank's dot plot. This new monetary policy pivot from the Fed should benefit certain bank stocks, according to Bank of America. During the last rate-rise cycle, net interest margin — a widely watched indicator that measures a bank's lending profitability — peaked. "Add to this, the ~120 [basis points] YTD increase in 2yr UST yields which should be quite impactful, as banks deploy excess cash and cash flows from bond books into higher yielding investment securities/loans," said Ebrahim Poonawala, banking analyst at Bank of America. Bank stocks have underperformed the S & P 500 since Russia invaded Ukraine late last month. However, the interest rate picture is looking positive for the group despite a cloudier outlook for gross domestic product. BofA put together a list of banks that could rise along with interest rates. Take a look below: Bank of America's "Fed liftoff" list is full of domestically focused banks. "Rate sensitive, domestically focused banks are likely best positioned to outperform given investor caution on globally interconnected institutions," said Poonawala. Banks like Citizens Financial Group and East West Bancorp could surpass their respective price targets if rates push even higher and the economy recovers faster than expected, Bank of America said. The firm has a price target of $70 on Citizens and $118 on East West. Meanwhile, M & T Bank has a $200 per share price target from Bank of America. That's 10% above where the stock closed on Wednesday. The bank's upside is due to potential cost and revenue synergies from its acquisition of People's United Bank, according to Bank of America. Signature Bank has a robust $450 per share price target due to its strong balance sheet and healthy credit profile. "The above peers' multiples are driven by our expectations for SBNY to deliver above average growth given significant EPS sensitivity to higher rates," said Poonawala. Synovus Financial should also get a lift from higher rates, according to Bank of America. There's also the possibility that the company becomes a takeover target, which could further boost the stock. Wells Fargo made the "Fed liftoff" list as well. The bank, which has a $70 per share price target from Bank of America, could outperform due to lower loan losses and material expense management that improve visibility on future earnings. — with reporting from CNBC's Michael Bloom.

Wells Fargo building in San Francisco.

Source: CNBC

The Federal Reserve just started a rate hiking cycle, and Bank of America said a handful of bank stocks could be due for a "Fed liftoff."