Of late, the finance sector has been in news for the right reasons. The nation’s economic health, which the sector is largely dependent on, is showing steady improvement with increasing real GDP numbers, falling unemployment rate, improving consumer spending and stabilizing housing market.  

Further, the likelihood of another rate hike in the near future continues to dominate the headlines. The Fed Chairwoman Janet Yellen, at the Jackson Hole economic symposium in Aug 2016, said “Indeed, in light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months.”

Additionally, other Fed officials including the Fed Vice Chairman Stanley Fisher, the New York Fed President William Dudley and the Atlanta Fed President Dennis Lockhart have indicated a likely rate hike in the near term.

Except REITs, the other Finance sector constituents – banks, brokerage firms, asset managers and insurers – usually benefit from a rising rate environment.

Also, the finance companies’ performance in the second quarter was decent despite a challenging operating environment. The companies were able to maintain bottom-line growth driven by prudent cost management and exploration of different avenues to improve top line.

Notably, these favorable factors led the S&P 500 Financials (Sector) Index to rise 3.6% in August. While September is generally considered the worst performing month for the stock market, here we bring a handful of finance stocks that are expected to give good returns, given the above-mentioned catalysts.

Selecting the Winning Stocks

We have taken the help of the Zacks Stock Screener to shortlist financial stocks with a Zacks Rank #1 (Strong Buy) or #2 (Buy) and the VGM Score of ‘A’ or ‘B.’ Our research shows that stocks with a VGM Score of ‘A’ or ‘B’ when combined with a Zacks Rank #1 or #2 offer the best upside potential.

To further narrow down the list, we have taken stocks with market capitalization of over $3 billion and positive estimate revisions over past one month.

Here are the top five financial stocks that meet the criteria:

Toronto, Canada-based Canadian Imperial Bank of Commerce (CM Quick QuoteCM - Free Report) is a diversified financial institution, providing various financial products and services across Canada, the U.S. and around the world.

Zacks Rank: #2
VGM Score: ‘A’
Market Cap: $31.5 billion
% Change F1 Est. (4 weeks): 4.9%

Eaton Vance Corp. (EV Quick QuoteEV - Free Report) , headquartered in Boston, MA, is engaged in the creation, marketing, and management of investment funds in the U.S.

Zacks Rank: #2
VGM Score: ‘B’
Market Cap: $4.5 billion
% Change F1 Est. (4 weeks): 1.6%

Reinsurance Group of America Inc. (RGA Quick QuoteRGA - Free Report) , headquartered in Chesterfield, MO, is an insurance holding company mainly engaged in traditional individual and group life, asset-intensive, critical illness and financial reinsurance.

Zacks Rank: #2
VGM Score: ‘B’
Market Cap: $6.9 billion
% Change F1 Est. (4 weeks): 5.9%

Toronto, Canada-based Sun Life Financial Inc. (SLF Quick QuoteSLF - Free Report) provides protection and wealth management products and services to individual and group customers worldwide.

Zacks Rank: #2
VGM Score: ‘B’
Market Cap: $19.6 billion
% Change F1 Est. (4 weeks): 1.5%

The Toronto-Dominion Bank (TD Quick QuoteTD - Free Report) , headquartered in Toronto, provides various retail and commercial banking products and services in Canada, the U.S. and internationally.

Zacks Rank: #2
VGM Score: ‘B’
Market Cap: $83.2 billion
% Change F1 Est. (4 weeks): 2.4%

Where Do Zacks' Investment Ideas Come From?

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