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Dec. 15, 2016, 8:50 a.m. EST

These are the bank stocks to buy — and sell — after this Fed-fueled run

How to judge J.P. Morgan, Bank of America, Citigroup, Wells Fargo and more

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By Jeff Reeves, MarketWatch


Bloomberg, Getty Images, Regions

It’s official: The Federal Reserve has raised interest rates , as everyone expected.

But where does that leave investors, since the market clearly already priced in this run?

Over the last several weeks, the rotation into cyclical stocks has been quite dramatic. While the S&P 500 index is up about 7% since Nov. 1, the Energy Select Sector SPDR ETF /zigman2/quotes/206420077/composite XLE +0.49%  has climbed about 12% and the iShares U.S. Financials ETF /zigman2/quotes/207031846/composite IYF +1.31%   has jumped about 13% in the same period.

However, the so-called “Trump trade” is starting to feel awfully crowded as the markets start to settle down after this run. And more than a few traders out there think the rotation into cyclicals has gone too far.

Take sleepy staples stock Unilever PLC ADR /zigman2/quotes/204685760/composite UL -0.34% , which is down 5% since Nov. 1 but is still an undeniably stable company that offers a 3.5% yield. Or take tech darling Facebook Inc. /zigman2/quotes/205064656/composite FB -1.15% , which has tumbled 10% since Nov. 1 despite its consistent growth on the top and bottom lines. Both of these names seem to have been tossed out with the bath water, and could be bargains here.

Read: S&P 500 companies would save $87.1 billion if Trump passes his tax plan

I still agree generally with the notion of the “reflation” trade, particularly in financial sector. However, it’s undeniable that a lot of the easy gains have already been made in the space and investors will have to be more discerning in the coming months.

So if you’re wondering what banks are buys and which ones are sells, here’s my list:

Big banks

Wells Fargo – Sell

Unless you’ve been living under a rock, you should be familiar with the scandals at Wells Fargo & Co. /zigman2/quotes/203790192/composite WFC +6.78%  that included more than 5,000 workers losing their jobs — including former CEO John Stumpf. While a Republican Congress may not be as aggressive as Elizabeth Warren and other Democrats, it’s hard to just forget about the 2 million unauthorized accounts that were opened and the associated risk of lawsuits and costly regulatory measures.

WFC is approaching a new 52-week high after a meteoric run. I would use this opportunity to get out while the getting is good.

J.P. Morgan Chase — Buy

If you are interested in banks stocks at all, you should be interested in J.P. Morgan Chase /zigman2/quotes/205971034/composite JPM +1.92% . It’s the largest U.S. bank by assets, and while it’s no stranger to scandals, it probably has the best reputation right now among the big banks. CEO Jamie Dimon has close ties to Trump and the GOP, recently joining a policy forum to advise the incoming administration. He was rumored as a potential Treasury secretary before Trump named Steven Mnuchin as his pick.

However, the biggest bullish factor is simply the numbers; J.P. Morgan is riding seven consecutive earnings beats, proving this is not a stock that is simply benefitting from a short-lived pop in pro-bank sentiment. With higher rates boosting net interest margins, a well-run megabank like J.P. Morgan Chase is a must-own in 2017.

/zigman2/quotes/206420077/composite
US : U.S.: NYSE Arca
$ 57.33
+0.28 +0.49%
Volume: 22.68M
Oct. 15, 2021 4:00p
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/zigman2/quotes/207031846/composite
US : U.S.: NYSE Arca
$ 87.20
+1.13 +1.31%
Volume: 396,867
Oct. 15, 2021 4:10p
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/zigman2/quotes/204685760/composite
US : U.S.: NYSE
$ 52.96
-0.18 -0.34%
Volume: 1.52M
Oct. 15, 2021 4:00p
P/E Ratio
21.52
Dividend Yield
3.46%
Market Cap
$136.46 billion
Rev. per Employee
N/A
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/zigman2/quotes/205064656/composite
US : U.S.: Nasdaq
$ 324.76
-3.77 -1.15%
Volume: 21.60M
Oct. 15, 2021 4:00p
P/E Ratio
24.05
Dividend Yield
N/A
Market Cap
$915.64 billion
Rev. per Employee
$1.47M
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/zigman2/quotes/203790192/composite
US : U.S.: NYSE
$ 48.38
+3.07 +6.78%
Volume: 60.10M
Oct. 15, 2021 4:02p
P/E Ratio
11.43
Dividend Yield
1.65%
Market Cap
$198.67 billion
Rev. per Employee
$305,853
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/zigman2/quotes/205971034/composite
US : U.S.: NYSE
$ 166.61
+3.14 +1.92%
Volume: 14.27M
Oct. 15, 2021 4:00p
P/E Ratio
10.54
Dividend Yield
2.40%
Market Cap
$497.86 billion
Rev. per Employee
$492,730
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