The post-election euphoria and the latest Fed rate hike undoubtedly placed financial stocks among the biggest winners. Putting up a great show, year to date, the Zacks classified Finance Sector gained 12.8%, outperforming the 10.1% increase for the S&P 500.

Concerns over global economic slowdown, plunge in oil prices and a slowing Chinese economy hit the finance sector hard in the beginning of the year. The sector again had a rough ride following the Brexit referendum.  

Amid such a tough backdrop, several market watchers predicted a weak performance by the sector, which had already been under pressure due to an ultra-low rate environment and stringent regulations.

However, with recent developments setting a more positive stage, the sector rebounded, crushing the market speculations. The optimism has been largely driven by heightened expectations of a favorable operating environment with less regulations and lower taxes under President-elect Donald Trump’s administration.

Also, earlier this month, the Federal Open Market Committee raised the target range for the federal funds rate by 25 basis points to 0.50–0.75% from 0.25–0.50%. Signaling confidence in the U.S. economy, the Fed expects three rate hikes in 2017 instead of the previous forecast of two. While banks are seen as major gainers as rates move up, several other industries under the broader finance sector, such as insurance, brokerage and asset management tend to benefit as well.

Moreover, the continued recovery in the domestic front should support the sector's growth in the quarters ahead.

Among several stocks in our radar, let’s have a look at four large cap financial stocks that not only outperformed the market but also have plenty of upside left.

4 Winning Stocks

Using the Zacks Stock Screener, we have picked four stocks in the Finance sector that returned more than major benchmarks Indexes so far this year. All these stocks have witnessed at least 15% positive price movement and sport highly desirable Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Goldman Sachs Group, Inc. (GS - Free Report) : Since the beginning of the year, shares of Goldman have gained 33.2%. Brexit-driven volatility spurred trading revenues for the company during the third-quarter 2016.  On a similar note, Trump’s victory is set to give another boost to this trading powerhouse.  Further, being a major global adviser in M&A, Goldman stands to benefit from increased M&A activity triggered by potential lower corporate taxes under Trump.

Goldman, a former independent investment bank that became a bank holding company to ride out the 2008 crisis, is not a major lending giant in the nation. Hence, the rate hike will not lead to a significant gain for the firm, unlike other average U.S. banks. However, the rising rate environment, to some extent will contribute to the earnings as it has been growing its loans and deposits balances over the past several years.  

Key development in 2016: Goldman, which is widely focused on large companies and wealthy clients, is now targeting consumers and small businesses. Notably, the company acquired the online deposit platform of GE Capital Bank in April this year, while in October it launched a digital consumer lending platform, Marcus by Goldman Sachs.

Estimate Revisions: Over the last 60 days, the Zacks Consensus Estimate for the current year increased 4.3% to $15.67 and advanced nearly 3% to $18.35 for 2017. The company has long-term expected earnings per share (EPS) growth rate of 11.6%.

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KeyCorp (KEY - Free Report): The Cleveland, OH-based banking giant continues to reflect strength in several areas, such as growing loans and deposits, improving credit quality and a strong capital position. Year to date, the stock has gained 39.2%.

Key development in 2016: Top line is set to get a boost from KeyCorp’s acquisition of First Niagara Financial Group which was completed in Jul 2016. The company expects an increase in average loans in the fourth quarter driven by the full-quarter impact of First Niagara acquisition. Also, management anticipates achieving $300 million worth of incremental revenues from synergies generated by the acquisition.

Estimate Revisions: Over the last 60 days, the Zacks Consensus Estimate for the current year increased 6.7% to $1.11 and advanced 4.9% to $1.28 for 2017. The company has long-term expected EPS growth rate of 6.7%.

Zions Bancorporation (ZION - Free Report): Shares of the Salt Lake City, UT-based bank have gained a whopping 60.2%, year to date.  The company continues to sustain growth in loans and non-interest deposits. Management expected net interest income to rise in the mid-single-digit to high single-digit rate in 2016. Also, it remains on track to achieve annual gross pretax cost-savings and expects to exceed the target of $120 million in 2017.

Key development in 2016: Zions, which had troubles with the regulatory stress-testing process in recent years, managed to exceed expectations this time. Following the clearance of the stress test, it won Fed approval of its 2016 capital plan, which included a dividend hike and a resumption of share repurchase program (up to $180 million).

Estimate Revisions: Over the last 60 days, the Zacks Consensus Estimate for the current year increased 3.8% to $1.92 and climbed 4.5% to $2.34 for 2017. The company has long-term expected EPS growth rate of 14.20%.

E*TRADE Financial Corporation (ETFC - Free Report) : The New York-based online brokerage firm gained 17.8% since the beginning of the year.  Brokerage firms are likely to engage in more investment activity in a rising rate environment. The firms earn interest income on un-invested cash in customer accounts. E*TRADE, which derives nearly 60% of its total revenue from interest income, remains well positioned to gain from the latest Fed rate hike.

Key development in 2016: In an effort to boost its derivatives platform, E*TRADE acquired online options broker – OptionsHouse – in Sep 2016. Further, the company set performance targets. It is focused on derivatives mix with a target of increasing it to 35% of daily average revenue trades (DARTs) and also set managed account AUM target of $6 billion within the next two years. The company aims to achieve 2–3% improvement in its rate of annual organic growth, across accounts, assets and trades.

Estimate Revisions: Over the last 60 days, the Zacks Consensus Estimate for the current year increased 2.2% to $1.83 and climbed 6.9% to $1.87 for 2017. The company has long-term expected EPS growth rate of 14.20%.
 

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