Finance stocks have come into the limelight recently, with the much-awaited Fed rate hike just around the corner. Any increase in rates will likely benefit the sector the most.

Notably, on Nov 17, 2016, testifying before the Joint Economic Committee of Congress, Federal Reserve Chair Janet Yellen signaled that the Fed may raise interest rates "relatively soon.” She said “the case for an increase in the target range had strengthened.”

Moreover, post the Presidential elections, finance companies have regained confidence about their prospects because of Trump’s bias for higher interest rates and lesser financial regulations.

Why the Finance Sector Seems to be a Good Pick Now

Various industries within the broader Finance sector, including banking, insurance and brokerage, typically benefit from a higher rate environment.

Finance Sector Price Index

Finance Sector Price Index

Bank of America Corporation (BAC - Free Report) is one such stock that looks attractive now. Shares of this banking giant have witnessed growth of approximately 34.3% year to date. The company’s capital position looks strong and it remains well positioned for the future, supported by growth in loans and deposit balances.

Per the company’s latest quarterly filing, as of Sep 30, 2016, BofA projected that if short- and long-term rates expand by 100 basis points, its net interest income (NII) would increase by approximately $5.3 billion. The company has a long-term expected earnings per share (EPS) growth rate of 7% and it currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Banks typically benefit from rising interest rates. The benefit primarily comes from a steep yield curve, i.e. when the spread between long-term and short-term rates is wide. Deposits usually carry short-term rates while loans are often tied to long-term rates. Accordingly, a rise in rates enables banks to charge more for loans, leading to an increase in their spread income.

Another stock from the banking space, which is likely to benefit from the expected rate hike, is Comerica Incorporated (CMA - Free Report) . Notably, while discussing third-quarter 2016 results, in its latest conference call, management said that a 25-basis-point rise in rates will likely add $70 million more to its NII over a 12-month period.

The company has gained 62.7% year to date and has a long-term expected EPS growth rate of 8.59%. It currently sports a Zacks Rank #1.

A rise in rates benefits Brokerage firms as well, as they are able to engage in more investment activity. These firms earn interest income on un-invested cash in customer accounts. The rise in rates will allow them to invest at higher rates.

A potential gainer in this sector would be E*TRADE Financial Corporation (ETFC - Free Report). The New York-based brokerage firm has gained nearly 18% year to date.  

We remain optimistic given the company’s renewed focus on strengthening its brokerage business with a target of achieving 2–3% incremental growth. E*TRADE has a long-term expected EPS growth rate of 14.2% and it currently carries a Zacks Rank #2 (Buy).

Primerica, Inc. (PRI - Free Report) , a stock from the Insurance industry, is also good choice now. Insurance companies invest majority of the premium income received from policyholders in government and corporate bonds to earn investment income. The potential rise in rates will allow the insurance firms to invest their new premium income in higher yielding securities, thereby leading to higher future returns, which will boost profits.

Primerica distributes financial products to middle income households in the United States and Canada. The Georgia-based company has seen its current-year earnings estimates rise to $4.53 per share from $4.42, over the past 60 days. Also, its long-term expected EPS growth rate is 13%.

The stock has gained 49.8% year to date. It currently carries a Zacks Rank #2.

Another stock from the same space, which will likely benefit from the rate hike is Health Insurance Innovations, Inc. (HIIQ - Free Report). The Florida-based health insurance company has gained over 100% year to date, and its Zacks Consensus Estimate has witnessed an upward revision of approximately 47% to 94 cents for the current year, over the past 60 days.

Notably, management in its latest conference call said that it expects the adjusted EPS for the coming quarters to range between 85 cents to 92 cents per share, up from the previous guidance of 55 cents to 65 cents.

It currently sports a Zacks Rank #1.