BMO Predicts Improvement In Credit Trends, Recommends 7 Stocks - Citigroup (NYSE:C)

BMO predicts an improvement in the system-wide fundamental credit quality over the next year-and-a-half and suggests "Value versus Growth" analysis remains the best way to generate investment ideas.

BMO's call comes as the system-wide fundamental credit quality this quarter deteriorated year-over-year for the first time since 2009.

"Despite recent deterioration, our macro-economic regression model (11 factors, R2=71 percent) forecasts system-wide fundamental credit quality improvement through to the end of 2017," analyst James Fotheringham wrote in a note.

In this scenario, following are the BMO's best ideas among U.S. large-cap banks and specialty finance stocks.

Long-Term Ideas

For long-term investors with an investment time horizon of at least two years, BMO recommends:

Mastercard Inc (NYSE: MA)
JPMorgan Chase & Co. (NYSE: JPM)
Capital One Financial Corp. (NYSE: COF)
Synchrony Financial (NYSE: SYF)

Short-Term Ideas

For shorter-term investors that employ event-driven strategies, BMO recommends:

Neutral Ideas

Citigroup Inc (NYSE: C)
Morgan Stanley (NYSE: MS)
OneMain Holdings Inc (NYSE: OMF)

For market neutral investors that measure absolute return in the context of price volatility, BMO recommend two pair trades:

Long Citigroup/Short Wells Fargo & Co (NYSE: WFC)

Long OneMain Holdings/Short CIT Group Inc. (NYSE: CIT)

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BMO predicts an improvement in the system-wide fundamental credit quality over the next year-and-a-half and suggests "Value versus Growth" analysis remains the best way to generate investment ideas.

BMO's call comes as the system-wide fundamental credit quality this quarter deteriorated year-over-year for the first time since 2009.

In this scenario, following are the BMO's best ideas among U.S. large-cap banks and specialty finance stocks.