CNBC’s Jim Cramer said Thursday that investors who think the Federal Reserve can pull off a soft landing should have bank stocks on their shopping list.
“If you think we’re headed for a full recession, it’s fair to avoid bank stocks. But if you’re like me and you think the Fed can really needle-thread and engineer a step so unbelievable – a hard landing, then these companies will make a fortune from higher rates,” he said.
The “Mad Money” host highlighted three banking stocks specifically as buys.
Here is the list :
- Wells Fargo
- Morgan Stanley
- Bank of America
“At these levels, I think Wells Fargo, Morgan Stanley and Bank of America are already reflecting recession worries, but they’re not reflecting the upside earnings from Fed rate hikes. … That’s why they are worth buying,” he said.
His comments come after the Fed raised its benchmark interest rate by 75 basis points on Wednesday, marking the biggest jump since 1994.
While stocks rose on the heels of Powell’s announcement, gains in bank stocks were modest. Major indexes reversed gains on Wednesday and then some on Thursday.
Cramer said bank stocks should have rebounded more than they did on the day of the Fed’s announcement, as a higher interest rate environment is often good news for banks.
“Any time the Fed tightens, it means banks can take your deposits and instantly earn higher returns without risk by putting them in short-term Treasuries,” he said.
“Of course, a Fed-mandated slowdown will also hurt banks – more defaults, less loan demand – but I think any potential weakness will be far more than offset by these much higher net interest margins.” , he added.
Disclosure: Cramer’s Charitable Trust owns shares of Wells Fargo and Morgan Stanley.
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