The financial sector is a mess. All the major banks reported earnings yesterday, and, while there were some signs of hope, the picture was dismal for all but two.

After reporting less-than-expected loan-loss reserves, companies like JPMorgan Chase & Co., PNC, U.S. Bancorp and even Bank of America showed signs of life.

Speaking of Bank of America, War Room members just closed out a near-50% winner on the stock just last week… Talk about good timing!

The rally in banks did not last long. However, I believe we are close to the bottom in terms of valuation…

And you don’t need to focus on the banks that are struggling with bad loans… when you can get the best of all worlds by getting into these two “pseudo-banks.”

I refer to them as pseudo-banks because they offer more upside potential than traditional banks while limiting downside risk.

Morgan Stanley (NYSE: MS) and Goldman Sachs (NYSE: GS) are those banks, for sure. Both had to take on commercial banking activities as part of an agreement to increase capital base through deposits. They did this without giving up investment banking or trading operations. In the case of Morgan Stanley, it also picked up the massive discount brokerage firm E-Trade and recently announced that it’s buying high-end money manager Eaton Vance.

This diversification has helped bring the share price close to 52-week highs, putting Morgan Stanley in rarefied air. Goldman Sachs is still far behind, but if this model holds up, its valuation should begin to catch up to Morgan Stanley’s.

For now, both companies are subject to stimulus and election-year whims. But if a market correction takes them down, that could lead to a profitable opportunity. If that happens, you can bet War Room members will be ready to buy them in real time, using a strategy that makes sense. It could be options, LEAPS, a combination of a covered call play – whatever it takes.

Action Plan: The range I am looking at is between $190 and $200 on Goldman Sachs and less than $45 on Morgan Stanley. So if you want exposure to “banks that aren’t really banks,” sign up for The War Room now to receive real-time alerts!