Despite the political uncertainty, and other macro issues that have weighed on the markets, it’s a good bet that Chair Janet Yellen and the members of the Federal Reserve board of governors will vote to raise interest rates from the current range of 75 to 100 basis points to a higher target range of 100 to 125 basis points, or 1.00% to 1.25%. While historically still incredibly low, this could be good news for some of the top banks.

We screened the Merrill Lynch research universe of financials for banks that should benefit from an increase in the federal funds rate. It’s also important to note that the financial sector, which took off after the Trump win in November, has traded back to almost the exact level it was at right before the election.

Citigroup

This top bank is trading at the same level it was in the summer of 2015. Citigroup Inc. (NYSE: C) has approximately 200 million customer accounts and does business in more than 160 countries and jurisdictions. It provides consumers, corporations, governments and institutions with a broad range of financial products and services, including consumer banking and credit, corporate and investment banking, securities brokerage, transaction services and wealth management.

Trading at a still very cheap 10 times estimated 2018 earnings, the bank looks very reasonable in what has become a pricey stock market. A continuing stock buyback program is a big positive.  The company outperformed each of its major peers after posting a solid set of underlying first-quarter results. Merrill Lynch thinks the key for the stock to outperform, outside of capital return, is to improve the quarterly earnings per share run rate.

Citigroup investors receive a 1% dividend. Merrill Lynch just raised its price target for the stock to $68 from $64. The Wall Street consensus price objective is $64.96. Shares closed Monday at $64.32.

JPMorgan

This stock trades at a reasonable 13 times estimated 2017 forward earnings and could respond good in a rising rate scenario. JPMorgan Chase & Co. (NYSE: JPM) is one of the leading global financial services firms, and one of the largest banking institutions in the United States, with about $2.6 trillion in assets. The company as it is today formed through the merger of retail bank Chase Manhattan and investment bank JPMorgan.

The firm has many operating divisions, including investment and corporate banking, asset management, retail financial services, commercial banking, credit cards and financial transaction services. The company reported solid first-quarter results and continues to take advantage of revenue opportunities in new markets and with the credit card business.

Investors receive a 2.3% dividend. Merrill Lynch has a $99 price target, and the consensus target is $94.13. The shares closed Monday at $86.98.

PNC Financial Services

This top regional bank was down almost 10% in March but has started to rebound. PNC Financial Services Group Inc. (NYSE: PNC) is one of the country’s largest diversified financial services organizations. It provides retail and business banking; residential mortgage banking; specialized services for corporations and government entities, including corporate banking, real estate finance and asset-based lending; and wealth management and asset management. With consistent earnings growth and a very positive and growing loan portfolio, the company is a premiere super-regional bank stock to own.

Wall Street analysts point to numerous positives, including the bank implementing huge cost savings plans. The bank is working on up to $100 million of new savings announced last year, and it is also applauded for outstanding credit/risk management and the limited exposure to the capital markets related areas, while focusing on traditional banking.

Shareholders are paid a 1.8% dividend. The $135 Merrill Lynch price target compares with the consensus target of $128.38. The stock closed Monday at $122.84 a share.

Wells Fargo

This large cap bank is another stock for investors to look at now for safety, dividends and solid upside potential. Wells Fargo & Co. (NYSE: WFC) is a nationwide, diversified, community-based financial services company with $1.8 trillion in assets. The company provides banking, insurance, investments, mortgage and consumer and commercial finance through 8,700 locations, 12,800 ATMs, the Internet and mobile banking. It also has offices in 36 countries to support customers who conduct business in the global economy. Wells Fargo serves one in three households in the United States.

Wells Fargo has slowly, but surely, become one of the biggest mortgage lending companies in the United States, in addition to its normal banking and brokerage businesses. A continued increase in commercial real estate lending could really boost the bank’s bottom line and overall revenue. The stock also remains a top Warren Buffett holding.

First-quarter earnings were somewhat disappointing as spread revenues and efficiency were lower than estimates. In addition, a confusing Investor Day message, along with a slower spread income outlook, drove shares down almost 10% over the past two weeks. Top analysts feel the company is laying the foundation this year for a much better earnings outlook starting in 2018.

Wells Fargo shareholders receive a 2.83% dividend. The Merrill Lynch price target is $62. The posted consensus target is $57.59, and shares closed Monday at $54.09.

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Sticking with the big money center and regional leaders makes sense, especially with some volatility creeping back into the overall markets. While the near term could get rocky, the long-term outlook for all these large cap leaders is solid, and with a potential for rates going higher, and the stocks much cheaper at current levels, the risk-reward is solid.

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