'Fast Money' Recap: Banking on Financial Stocks

NEW YORK (TheStreet) -- The S&P 500 rallied 0.60% on Thursday after Wednesday's slight selloff in response to the Federal Reserve.

On CNBC's "Fast Money" TV show, the trading panel was discussing the financial stress test results, where 29 of the 30 tested banks exceeded expectations. 

Brian Kelly, founder of Brian Kelly Capital, said he would not short-sell the financial sector but did say he would take profits on Friday. 

Pete Najarian, co-founder of optionmonster.com and trademonster.com, said he doesn't foresee much of a pullback in the financial sector. He added the options activity was very, very bullish for the Financial Select Sector SPDR ETF (XLF). He liked Citigroup (C) and Bank of America (BAC). 

Jon Najarian, co-founder of optionmonster.com and trademonster.com, said longer-term investors could hold bank stocks for the next year or two because interest rates will continue to rise, which will improve profitability. 

Guy Adami, managing director of stockmonster.com, said that investors could add to their long Citigroup position, because it is still undervalued. 

Although bullish, Pete Najarian admitted he took some profits in the financial sector but he remains long overall. 

Zions Bancorporation (ZION) was the only bank to fail the stress test but traded surprising well on that news, according to Adami. He added the stock could actually trade higher on Friday. 

With dividend hikes expected, stress test results released and interest rates set to rise in the future, Kelly questioned what the next catalyst would be to push bank stocks higher. 

Dick Bove, bank analyst at Rafferty Capital Markets, said the banking industry is producing record profits while simultaneously maintaining the strongest balance sheets these banks have ever had. 

He added that these companies have the capacity to substantially increase loan growth, which, coupled with higher interest rates, would drive earnings per share growth. He concluded these banks have the capacity to raise dividends for the next several years, not just this year. 

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