Financial Stock Picks from a Chief Investor

Small cap financial stocks are on their way from "ugly, to OK, to good, to great," said David Ellison, CIO of FBR Equity Funds. He shared his sector and stock investment strategies. (See below for Ellison's 3 stock picks.)

“There’s been not quite [as much] bad news there,” Ellison told CNBC.

“A lot of the small caps have avoided the bad assets and now they’re benefiting from good lending spreads, decent loan volumes and they have enough capital.”

Ellison said it is “very easy” for investors to find the better names in small cap financials.

More Market Intelligence:

By using small caps, “you can avoid the names that have exposure to commercial real estate and certain markets that are in trouble,” he suggested. “You can avoid the construction banks that have lent a lot of money to construction companies around the company, primarily residential.”

Ellison’s Long-Term Financial Picks:

Astoria Financial

Washington Federal

TCF Financial

CNBC Data Pages:



Ellison owns AF, WFSL and TCB indirectly through owning his funds.

CNBC Slideshows: