Big Banks vs Regionals: A Buy & Hold Recommendation

The financial sector is up over 20 percent so far this year, so can investors still get in? Matt McCormick, banking analyst and portfolio manager at Bahl & Gaynor Investment Counsel, and Doug Rainwater, managing director and senior bank analyst at Rodman & Renshaw, discussed their sector outlooks.

“I’m bullish on the sector and I’m positive on banks—we’ve had a very good runoff of very oversold conditions,” Rainwater told CNBC.

“I’m not looking for 50 percent annual increases from here, but I think banks at these valuation levels with increased capital levels and higher reserved levels going forward offer what might be a fairly attractive compound annual return for a longer-term buy and hold investor.”

Rainwater said he sees some investment opportunities in some of the regional banks, in particular.

“A lot of your regionals and the community banks right now are in pretty good positions and are able to capitalize in the FDIC-assisted transactions. Those are ones that I would herd people towards,” he said.

In the meantime, McCormick said he is skeptical about the regionals.

“On a more macro level, we’re more worried about the Fed recently raising the discount rate,” he said. “When you look at some of the regional banks and the community banks, they’ve all had great runs and I question the law of big numbers—how can they duplicate it again?”

McCormick likes Northern Trust , ScotiaBank and T.Rowe Price and said he is a fan of high quality companies with strong dividends.

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McCormick’s firm own shares of TROW, BNS, NTRS.