Andrew Wang and Nick Colas provide their respective outlooks for the financial sector, including some names they like moving forward in 2021.

Key takeaways:

Bank stocks are enjoying a rate party. Is the benefit for shares limited without more loan demand?

We like the outperformance of large cap banks over money center, mega cap banks.

Fifth Third, like many of its peers, is flush with capital. Coming out of the pandemic, there's weak loan demand but record deposit growth fueled by the size and speed of government stimulus.

If we stay on track with vaccines and more stimulus, favorable credit conditions should continue through 2021. If banks realize fewer losses, they will be able to release reserves and add them back into earnings. In addition, Fifth Third is planning up to $180 million in share buy backs in the first quarter.

Fifth Third Bancorp (FITB)

  • Shares have recovered to pre-pandemic levels.
  • Flush with capital as weak loan demand persists amid record deposit growth.
  • Stock is selling at 12.5x '22 consensus earnings estimates of $3.00.
  • Annual dividend of $1.08 per share, with a dividend yield of 2.9%.

For investors who prefer a basket of over 50 regional banks, here is an exchange traded fund that includes mid-cap and small-cap bank stocks. Many regional lenders are optimistic that growth will return in the second half of 2021.

Invesco KBW Regional Banking ETF (KBWR)

  • Regional banks have fewer moving parts and less regulatory framework.
  • Exposure to mid-cap and small-cap.
  • TTM dividend of $1.38 per share, with a dividend yield of 2.2%.
  • Net expense ratio 0.35%.

What are your thoughts on banks and the financial sector?