BMO Predicts Improvement In Credit Trends, Recommends 7 Stocks

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 MA
• JPMorgan Chase & Co. JPM
• Capital One Financial Corp. COF
• Synchrony Financial SYF

Related Link: Banking Woes Not Over For Brazil ETFs

Short-Term Ideas

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

Neutral Ideas

• Citigroup Inc C
• Morgan Stanley MS
• OneMain Holdings Inc OMF

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