“Fed rate hike” – three magical words that have kept investors optimistic about the U.S. economy amid global headwinds such as growth issues in China, crashing commodity prices and volatile oil prices.

While most of the economies have been loosening their monetary policies with Europe and Japan heading towards negative interest rates, the Federal Reserve’s rate hike in Dec 2015 marked the end of its accommodative monetary policy of nearly eight years, indicating strength in the domestic economy.

However, the massive sell-off in the early part of this year dashed the hopes of gradual rate hikes throughout 2016 with several market experts and analysts predicting recession in the U.S. market.

A Strong Comeback

Though the Fed left the market empty-handed in its January meeting, the volatility that hit markets from mid-2015 through the early part of February this year has now passed. Also, the U.S. stock market has shown some recovery in the past one month amid heightened uncertainty. The S&P 500 index gained over 8% in the past month.

Moreover, the U.S. economy has regained momentum after a sluggish fourth quarter, given the slew of encouraging data pertaining to retail sales, consumer spending, producer prices, factory production and inflation. The recent strong jobs data further eased fears of a recession in the U.S. and infused signs of confidence into the economy.

While tepid wage growth remains a matter of concern, a solid hiring number is strong enough to support the Fed’s gradual interest rates hike this year.

Is a Rate Hike in the Cards?

While the recovery of the U.S economy has set the stage for the Fed to declare another rate hike, the chances of that happening appear to be bleak.

Per the latest Wall Street Journal poll, just 3% expect the Fed to lift rates at the March 15-16 meeting, while about 76% of the economists believe that the Fed will next raise rates at its June 14-15 policy meeting. Around 6% predict that the Fed will keep rates steady at the March 15-16 meeting and then raise them at its April 26-27 meeting. Moreover, 15% expect rates to remain unchanged until June and 6% are of opinion that the Fed will wait until its September meeting to make its next move.

On average, forecasters estimate the probability of a June rate increase at 44%, according to CME Group. “Even these slow expectations are likely too optimistic,” said Russell Price, a senior economist at Ameriprise.

The market sentiments captured through the polls indicate that the Fed is anticipated to sit on the rate hike decision and wait for more positive data to flow in before succumbing to another rate increase.

Given the current wait and see scenario, the time seems to be right to keep a tab on stocks that tend to benefit from an interest rate hike. The likely interest rates hike will ease some pressure on net interest margin (NIM) – a key source of banks’ earnings.

Also, banks will earn more from the money that they need to keep at the Fed compared with almost no income from this source in a near-zero rate environment that has prevailed since the last financial meltdown. Moreover, as a rising interest rate depicts the economy’s growth, there will be lesser non-performing assets for the banks.

Bank Stocks to Watch Out For

With the help of the Zacks Stock Screener, we have shortlisted 5 stocks in the banking industry that sport a Zacks Rank #1 (Strong Buy) or 2 (Buy) and have projected EPS growth rate (F1/F0) of 15% or higher. These banks are currently well positioned to gain from a rate hike.

Based in Arkansas, Bank of the Ozarks, Inc. (OZRK - Analyst Report) operates as a bank holding company for Bank of the Ozarks that provides various banking products and services. The company accepts non-interest bearing checking, interest bearing transaction, business sweep, savings, money market, and individual retirement accounts; and time deposits.

Zacks Rank #2
Projected EPS Growth (F1/F0): 19.52%

BofI Holding, Inc. (BOFI - Snapshot Report), headquartered in California, operates as the holding company for BofI Federal Bank that provides consumer and business banking products through the Internet in the United States. The company’s deposits products include consumer and business checking, demand, savings, and time deposit accounts.

Zacks Rank #2
Projected EPS Growth (F1/F0): 38.82%

Headquartered in Pennsylvania, Customers Bancorp, Inc. (CUBI - Snapshot Report) operates as the bank holding company for the Customers Bank that provides financial products and services to small businesses, not-for-profits, and consumers. It offers depository products, including commercial and consumer checking accounts, non-interest-bearing demand accounts, money market deposit accounts, savings accounts, and time deposit accounts.

Zacks Rank #2
Projected EPS Growth (F1/F0): 21.09%

Enterprise Financial Services Corp. (EFSC - Snapshot Report), based in Missouri, operates as the holding company for Enterprise Bank & Trust that offers banking and wealth management services to individuals and corporate customers. The company accepts various deposit products that include demand deposits, interest-bearing transaction accounts, money market accounts, savings accounts, certificates of deposit, and noninterest-bearing demand deposits.

Zacks Rank #1
Projected EPS Growth (F1/F0): 21.49%

Colorado-based National Bank Holdings Corp. (NBHC - Snapshot Report) operates as the bank holding company for NBH Bank, N.A. that provides various banking products and financial services to commercial and consumer clients in the United States. The company offers various traditional depository products, including commercial and consumer checking accounts, non-interest-bearing demand accounts, money market deposit accounts, savings accounts, and time deposit accounts.

Zacks Rank #2
Projected EPS Growth (F1/F0): 41.54%