2 Bank Stocks to Buy for 2018

There are several catalysts that could drive bank profits higher in 2018 and beyond. Federal Reserve interest rate increases could lead to serious margin expansion, tax reform could boost profits by billions, and wage growth and improving consumer sentiment could translate into more demand for loans and other banking products.

However, banks have also been one of the best-performing sectors in the market, so it's tough to determine if there are any bargains left or if all of the good news is priced in. While some bank stocks are beginning to look expensive, here are two that still look like good buys right now.

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Data source: TD Ameritrade. Prices and dividend yields as of 1/22/18.

This investment bank could make even more money if a stock market correction comes

To be clear, Goldman Sachs is facing some headwinds. Because it's an investment bank, some of the catalysts that help commercial banks don't have quite as big of an effect on Goldman Sachs as they do on commercial banks. For example, although its Marcus online banking platform has been quite successful, it's still a relatively small part of the bank's business, so margin expansion and rising consumer confidence won't help Goldman as much as say, Bank of America.

In addition, Goldman Sachs' trading business, which is typically the bank's bread-and-butter, has woefully underperformed lately. Fixed-income trading revenue was down across the industry in 2017, but Goldman's 50% year-over-year drop was the worst among the big banks.

For these reasons, Goldman has been a major laggard. Over the past year, Goldman is up by just 12%, less than half of the financial sector's 29% gain.

However, it's important to point out that most of Goldman's business is doing quite well. The bank has the top market share in announced and completed M&A, as well as in equity and common stock offerings. The aforementioned Marcus platform, while still rather small, is growing rapidly. In just over a year in business, Marcus made more than $2 billion in personal loans and took in more than $5 billion in deposits. If this growth continues, it could become a major component of Goldman's business a few years down the road. Also, Goldman's investment management business just generated its highest annual revenue yet.

Finally, Goldman could be an excellent play on banking if a market correction comes in 2018 as many experts are projecting. The main reason trading revenue has suffered so much is a lack of volatility, and a market correction could solve that problem.

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The biggest credit card company you've never heard of

When most people think of credit card issuers, they think of American Express, Capital One, and Citigroup, just to name a few. While these companies have excellent credit card businesses, my favorite way to play the space in 2018 is with a company that many investors aren't too familiar with -- Synchrony Financial.

Synchrony was formerly part of General Electric's finance division and is a store credit card issuer as well as a growing online bank. The company issues store credit cards for dozens of retailers, such as Amazon.com, Wal-Mart, and Lowe's, just to name a few. And its online-only bank offers savings accounts and CDs that pay significantly higher than average interest rates.

From an investment standpoint, there are a few unique characteristics that make Synchrony's business model very interesting.

First is its profitability. Store credit cards tend to have ultra-high interest rates, often approaching 30%. Synchrony's charge-off rate is certainly higher than the industry average, but the high interest rates on its cards more than make up for it. Consider this -- the average credit card interest rate is about 16%, and then they have to worry about charge-offs and other expenses. Synchrony's net interest margin after those costs is 16.24%.

Second is its efficiency. Synchrony operates at an efficiency ratio of just over 30%. Meanwhile, most banks are happy to run at 60%. In simple English, this means that Synchrony spends just $0.30 to generate every dollar of revenue, a remarkable efficiency ratio.

When you add in the recent acquisition of PayPal Holdings' consumer credit business, which I feel has tremendous long-term potential, Synchrony looks like a great bank stock for 2018 and beyond.