The Federal Reserve's monetary-policy committee boosted the Federal Funds rate a quarter-point to a 2%-2.25% range Wednesday, and here are four bank stocks that I like in this move's wake.
But first, let's look at a bit of macroeconomics to explain why I like bank stocks here.
I think that current market conditions -- a rising-rate environment where we're finally seeing some weakness at the yield curve's longer end - mean that traditional bond proxies or dividend stocks will struggle here. I expect less investor demand for utilities, real estate investment trusts, staples stocks and those names that once comprised the telecom sector.
Instead, I think investors will need exposure to banks here. Names that I like include:
JPMorgan Chase (JPM - Get Report)
JPM remains my top pick among banks, because simply put, it's the best stock in its class.
You get the best of all worlds -- a $19.4 billion stock-repurchase program, a fairly juicy 2.7% dividend and the industry's best balance sheet. Add in massive operating cash flow and a stock that currently trades at just 11 times next year's projected earnings and what's not to love?
Citigroup (C - Get Report)
I'm also long Citigroup here, based on the stock's absurdly low valuation (just 9x its forward price-to-earnings ratio) and the company's plan to return $22 billion to shareholders.
Goldman Sachs (GS - Get Report)
GS shareholders have recently seen their hopes for this name reborn, as the firm has recent shaken up its senior management.
KeyCorp (KEY - Get Report)
This is a blast from my portfolio's past, but it looks like it's time to re-engage with the stock.
KEY pays a 3.3% dividend, and its share price rose some 10% in just three days last week (Wednesday through Friday) thanks to a steepening yield curve. Analysts expect earnings to shoot up 27% this year and an above-market 11% in 2019.
Additionally, Barron's recently quoted Deutsche Bank analyst Matt O'Connor as saying that KeyCorp has about $1.25 billion of securities rolling off each quarter that currently pay a 2.1% blended yield, but which the firm can reinvest at 3.3%.
KEY also reported 2% quarter-over-quarter total loan when it released second-quarter results in July. We'll get third-quarter numbers in three weeks.
I'm likely to re-enter this name Wednesday afternoon. I plan to buy a portion of my intended position on the stock's pre-Fed dip, with the intent of adding an additional tranche somewhere between $19.75 and $20.25 if the market does what I expect it to. That will be the difference in determining whether I end up holding KEY as a short-term trade or as a longer-term investment.
Read Stephen "Sarge" Guilfoyle's Market Recon column before the bell every trading day on Real Money, our premium site for active traders and Wall Street professionals.