It has been nearly three years since the Lehman Brothers bankruptcy, and every few months I get a flood of emails asking if it’s time to get back into banks and the financial sector. Just this week, one of my Facebook members asked, “What do you think about Bank of America (NYSE:BAC) stock? Is there any chance that we can see $11.90 or $12.80 by the end of July?”

I understand the urge to get back into the sector and recoup losses — and the current dangers of the financial sector. Investors have been hurt by a number of false rallies in banking stocks over the last three years, and I don’t want that to happen to Lepi or any of my readers, so we’ll dive into three distinct areas of financials and see if there are any safe ways to invest.

Diversified Financials

Let’s start with Bank of America stock and some of the other major diversified financial companies. These companies aren’t just banks because they are involved in just about every aspect of the financial sector. The key here is that it isn’t just about getting people to open savings accounts.

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Bank of America (NYSE:BAC) is not safe to invest in right now. Before I make a single stock recommendation I put the stock through rigorous fundamental screens to make sure it has a solid foundation that protects it from market volatility. BAC fails in nearly every category. The company is not growing its sales, earnings or margins, and that’s why the stock has been through volatile fits and starts as investors rush in and out on speculation and not actual growth. Plus, these types of financial companies still can’t get their act together when it comes to ethical business practices. Allegations about one of BAC’s units committing fraud and charging unfair fees in 2002 are coming to light. Sorry Lepi, but BAC has a better chance of breaking under $10 than breaking over $12 right now.

Citigroup (NYSE:C) is another diversified financial company that doesn’t get quite as bad of marks as BAC, but it’s still a stock to avoid. Citigroup has been able to get operating margins and cash flow moving in the right direction but is still lacking the earnings growth and other fundamentals that will keep the stock on an upward trajectory. Plus, Citigroup isn’t out of the woods when it comes to scandals. Following a hacker attack that stole data on hundreds of thousands of credit cards, this week a Citigroup accountant faced charges of stealing $19.2 million from the company. Until Citigroup can make the headlines because of positive developments in the company, avoid this stock as well.

There is one company in this part of the industry that I would give a buy rating to, and that’s Moody’s Corp. (NYSE:MCO) — but I do so with a word of caution. MCO stock has been on an incredible run over the last year because of earnings growth, earnings momentum, analyst upgrades and cash flow. But, the company is not immune to the type of scandals BAC and C have experienced. Authorities are on the hunt of a former analyst at Moody’s for his role in leaking and profiting from insider information. Because MCO has stronger fundamentals than the other diversified financials, this won’t have as big an impact, but I expect scandals to continue to plague the industry and for smart investors to steer clear.

Commercial Banks

Wells Fargo & Co. (NYSE:WFC) is a bit of a mixed bag. Overall, I give the stock a D-rating, which means it’s a “sell.” But there are some bright spots for the company. Earnings growth, earnings momentum, cash flow and return on equity are all working in this stock’s favor. That’s why WFC has been able to go on quick runs of upwards of 30% at a time. However, sales growth is expected to be negative this quarter, next quarter and through the rest of the year and buying pressure has waned of late, and that is why the stock has experienced fast corrections of 30% at a time. Until the company can post more consistent results, I would avoid this bank.

CorpBanca S.A. (NYSE:BCA) is the oldest bank in Chile operating since 1871. Through its network of more than 70 branches and upwards of 100 ATMs across the country, the bank offers a range of commercial, retail banking, financial advisory and insurance brokerage services. That’s right, you have to go outside U.S. boarders to get a strong buy recommendation on a bank stock from me. Chile is experiencing tremendous growth in the middle class, and the banks are benefiting. With strengthening fundamentals and increasing buying pressure, this is one bank that I recommend as a buy in this market.

Consumer Finance

I get questions about credit card companies all the time. With all the changing rules and regulations in the industry, it’s hard to know which way is up with these companies. Here’s my take on both right now:

Capital One Financial Corp. (NYSE:COF) has some of the most recognizable television commercials and names in the business, but the company is going to have to come up with something more innovative if it wants to keep its stock moving higher. COF gets a “hold” recommendation from me because recently its sales and earnings growth has weakened. The recent agreement to acquire ING Direct will put COF in the top five biggest depository institutions in the U.S. and the biggest online bank. I want to see how this $9 billion deal settles out before moving COF to a “buy,” so if you own it, that’s okay, but I wouldn’t recommend adding to your shares at this time.

Discover Financial Services (NYSE:DFS) is breaking through its 52-week high as we speak and gets a strong buy recommendation from me. The company has surprised analysts earnings estimates by at least 20% and as much as 200% in the last four quarters. And in its most recent earnings report, profits doubled. I love buying good companies at 52-week highs, and if you really want a way to play the financial sector, this would be your best bet.

The Bottom Line

The bottom line with the financial industry is that even though nearly three years have passed since the financial crisis, they are still working the kinks out of the system. As long as fraud charges keep surfacing and these companies fail to grow their sales, earnings and margins, investors will get pinched. You should be very wary of the sector as a whole and limit your buying to only the most fundamentally sound companies.