4 Financial Rally Stocks for July

BALTIMORE (Stockpickr) -- Yesterday's rally showed us that despite a market that's moved considerably lower in recent months, investors are willing to bid up stocks that they see as undervalued right now. Even though the market looks to pull back early in today's trading session while Wall Street digests Thursday's forthcoming jobless claims and consumer credit data, the consensus among the pros seems to be that we're due for an upward bounce in the big indices -- which could lead to significant gains for certain sectors.

One of those sectors is financials.

While we've seen vast fundamental improvements in the financial sector, investors continue to be wary of putting their cash into financial stocks -- and understandably so. Financials took the brunt of a severe beating in 2008 thanks to an economic crisis that they contributed to in a large way. At the same time, shareholders found their stakes watered down by dilutive equity issues and bailouts. And in many cases, toxic assets remain on -- and off -- banks' balance sheets.

But not all financial stocks are flawed. In fact, the drag on the financial sector provided some interesting value opportunities for investors who were willing to look past the stigma and buy conservative firms that had strong fundamentals. To some extent, 2010's selloff has put similar opportunities on the table.

Here's a look at four financial rally stocks for July 2010.

Regional banks have been one of the most maligned groups of all. With limited exposure to subprime lending and double-digit profit margins, scores of regional banks make for attractive investments. But BB&T(BBT) stands out from the crowd. The $19 billion bank operates all over the East Coast, with a particular dominance in the Southeast and mid-Atlantic. And while BB&T's shares have matched the rest of the regional banking industry in 2010 (up 7.8%), this stock could see bigger gains when it announces earnings later this month.

Two factors make BB&T an especially attractive play right now: a conservative balance sheet and strategically smart use of capital. BB&T abstained from taking on excessively risky bets during the housing boom, eschewing potentially lucrative subprime bets in favor of higher-performing loans. That's a decision that kept the company profitable throughout the recession -- in total, operating expenses grew only 1% in the last couple of years, despite the increased cost of nonperforming asset collection that peers were faced with.

Who Owns BB&T? Appaloosa Management