CNBC’s Jim Kramer said Thursday that investors who think the Fed can pull back from a small dip should have bank stocks on their shopping list.
“If you think we’re heading into a full-fledged recession, it’s a good idea to avoid bank stocks. But if you’re like me and you think the Fed can actually do some finer lines and engineer an incredibly incredible-hard landing, then these companies will earn fortunes from higher rates.
The “mad moneyThe host specifically highlighted three banking stocks as buying stocks.
Here is the list:
“At these levels, I think Wells Fargo, Morgan Stanley and Bank of America really do reflect recession fears, but they don’t reflect higher earnings from higher interest rates from the Fed…that’s why they are worth buying,” he said.
His comments come after the Federal Reserve raised its benchmark interest rate by 75 basis points on Wednesday, marking the biggest jump since 1994.
While stocks rose in the wake of Powell’s announcement, gains in banking stocks were modest. Major indexes reversed gains on Wednesday and then some on Thursday.
Cramer said bank stocks should have been higher than they did on the day of the Fed’s announcement, because a higher interest environment is often good news for banks.
“Every time the Fed tightens, that means the banks can take your deposits and then immediately earn higher risk-free returns by putting them into short-term Treasury bills,” he said.
“Of course, the Fed-imposed slowdown will hurt the banks – more defaults, lower loan demand – but I think any potential weakness will be offset by much higher net interest margins.” he added.
Disclosure: Kramer Charitable Fund owns shares in Wells Fargo and Morgan Stanley.
open an account now For the CNBC Investing Club to keep track of Jim Cramer’s every move in the market.
“Explorer. Unapologetic entrepreneur. Alcohol fanatic. Certified writer. Wannabe tv evangelist. Twitter fanatic. Student. Web scholar. Travel buff.”