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Kramer: It’s Time to Buy Big US Banks
InvestorPlace | July 29, 2011 | 03:18 PM EDT

Several signs suggest a rebound in the bank sector is on the way.

Since mid-February, the bank stocks have had a death march. Even top-notch hedge fund managers—like billionaire John Paulson—have dumped large positions in the sector.

However, there are some hopeful signs that things are improving. For example, the KBW bank Index spiked 3.3% last week.

So why might there be a rebound? There are some important catalysts. For example, according to a recent report from Goldman Sachs , there are positive trends in the overall growth for commercial loans, lower credit losses and stronger cost savings. It’s also encouraging that the balance sheets are fairly strong.

Besides, the bad news—such as regulations and low interest rates—have already been discounted by investors. In other words, the banks could be poised for some nice upside.

For investors, what is the best way to play this? I think the best strategy is to focus on quality operators that have overlooked earnings power.

Here’s a look:

J.P. Morgan Chase: In the latest quarter, the firm was able to increase revenues an impressive 7 percent and profits came to $5.43 billion .

J.P. Morgan is seeing lots of strength from its investment banking operation—in terms of equity and debt offerings. In fact, with the spike in IPOs, there should be much more growth.

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