Cramer: Favor the Regionals Over the Big Banks

NEW YORK ( TheStreet) -- Lindsey Bell: We're in the midst of bank earnings season. On Thursday we got a handful of reports, one of which was Bank of America ( BAC). The top line was short, but they still beat earnings. The stock is down about 3% on Thursday . Were expectations too high going into this?

Jim Cramer:

And stock was up more than 100% last year.

Lindsey Bell:


Jim Cramer:

Best performance in the Dow, so expectations were clearly high. I'm a fantasy football fanatic and there's a guy by the name of BenJarvus Green-Ellis. He's a running back for the Bengals. He's also known as The Law Firm, and it looks like if you look at the third line of Bank of America, they're talking about legal expenses. Here's my thesis. It's time to scale back on what I regard as a very crowded money center trade. We can talk about Citigroup ( C) being the same way.

JPMorgan ( JPM), they've been the darlings, OK? And then invest heavily in the regional banks. They are putting up numbers that tell me to stop looking at this net interest margin, start talking about growth stocks. I mean, when you have a growth stock, yes, net interest margins are really important, but so are sales. I mean, net interest margin in a bank, that's a fulcrum thing. That's a metric, but sales matter.

Expansion down the road matters. Construction loans matter. The idea that a city's business might be turning or a state, that matters. And that's what's happening, whether it's because of the unemployment numbers we got or because we're through the fiscal cliff, or maybe it's that the debt ceiling won't be that big of an issue. The regionals are where it's at. We have been buying KeyCorp ( KEY) for I would tell you right now, I said this to Stephanie Link this morning, my co-portfolio manager, Key may be the most undervalued stock that we own in the portfolio. There is going to be a switch out of the money centers. We did trim back Wells Fargo ( WFC) ourselves.

Wells Fargo being more of a regional money center, but it is a money center, and into a company like PNC ( PNC), which didn't even have a good quarter, but the stock is flying. BB&T ( BBT) had very big compression net interest margins, but the stock is flying. I don't think Key is going to have a compression net interest margin. Key's going to be blessed on all cases, but this is where the action is. It's time. You're in Citi, you have had a big gain, time to go. You're in Bank of America, you've had a big gain, cut it in half. You find a regional you're comfortable with, OK? Huntington Bank ( HBAN), Key, BBT, First Horizon ( FHN), ticker FHN, you find a regional you're comfortable with and you buy it right here, right now.

Lindsey Bell:

And just quickly, though, on Citi, this was the first quarter ...

Jim Cramer: Unfathomable, frankly.

Lindsey Bell:

... with CEO Michael Corbat at the helm. How long do you think before we start to ...

Jim Cramer:

Well, I mean, here's the problem with Citi. They've got a couple of components. A lot of moving parts.

You've got the Citi Holdings. I keep waiting for that to be gone or be brought back on to the balance sheet, because it's good, which is what I thought would eventually be happening and that's not happening. You have this great emphasis on emerging markets. Emerging markets have finally come back to life. In the interim, Citi spent a fortune becoming the king of emerging markets. Then, at the exact bottom of what I think's going to be the emerging market cycle, they fired former CEO Vikram Pandit who designed this. They decide to go with a traditional commercial banker as the new CEO, which is good, because commercial banking is going to become ascendant, as I mentioned in the regionals.

My problem is that this was an emerging market play, not a bank play, so I got to start putting it through the prism of banks. I don't even like it as much of a bank play. As an emerging market play, I liked it. So I was a believer in Pandit's strategy. Maybe he wasn't executing well, but that was a gaining factor. All the other banks are largely domestic. This is 65% international, but they've decided, I think, to say, hey, you know, we're pulling back, just when they should be going forward with the emerging market strategy. I think that Pandit may have been the wrong man because they couldn't return capital under the regulators, but the strategy was a good one. I'd hate to see them back away from it. Citigroup is unfathomable if they are backing away from it.