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10 Best Stocks of 2012

It has been, on the whole, a great year for stocks in 2012. The major indices have rallied nicely since Jan. 1, with the S&P 500 up almost 13%, the Dow Jones up almost 8% and the Nasdaq up almost 15% as of this writing.

But if you think those returns were good, check out some of the market’s top performers. A number of big-name stocks have more than doubled in the past year thanks in large part to hopes of a recovery in the housing market.

There are always a few small-time biotech stocks or technology upstarts that see explosive returns, but the following list of the S&P 500′s 10 best stocks is noteworthy because it says a lot about where the market has been in 2012 — and where it might be going in 2013.

#10: Gap

After a stumble during the financial crisis and resulting recession that was far worse than other retailers, Gap Inc. (NYSE:GPS) saw quite a turnaround in 2012, and the company seemed to find its groove again in the fashion world with trendy clothes that seemed to catch on with young female shoppers. Same-store sales were up nicely and consistently — a nice change of pace after years of posting sometimes double-digit declines — helping the retailer to ring up more than 70% gains year-to-date as of this writing.

#9: Tesoro

Unlike oil exploration and drilling stocks that need a high nominal price for crude oil to deliver high profits, refineries operate best on the spread between the crude oil they take in and the finished fuel they sell. And thanks to a nice differential, refinery stocks went on a tear this year, with Tesoro Corp. (NYSE:TSO) up nearly 80% year-to-date.

#8: Gilead Sciences

Every year you get a biotech or medical device company that pops on a landmark treatment. Well, this was Gilead Sciences‘ (NASDAQ:GILD) year. Most recently, new data showed great progress in its development of a next-generation treatment for hepatitis C, and shares popped more than 12% in a single trading day this November as a result. An earlier pop of 11% was recorded in February thanks to similar optimism.

With companies like this, it tends to be all or nothing, with a favorable research report and FDA approval meaning big gains and a bad report a catalyst for an implosion. Those who bet on Gilead’s research pipeline made the right move. GILD stock is up more than 80% year-to-date.

#7: Lennar

Up more than 80% since Jan. 1, Lennar (NYSE:LEN) is the first of a few housing-related stocks that are on this list of top S&P 500 performers so far in 2012. Improvement in year-over-year revenue has shown up for four straight quarters, and profits have doubled from fiscal 2011 to fiscal 2012 thanks to signs of life in the homebuilding sector. Lennar stock has taken an impressive ride as a result.

#6: Marathon Petroleum

Petroleum refinery Marathon Petroleum (NYSE:MPC) has surged 85% year-to-date for many of the same reasons the aforementioned Tesoro stock is up. MPC manufactures and sells fuels instead of focusing on exploration and production of crude. Marathon was recently spun off from parent Marathon Oil (NYSE:MRO) to give investors a focused play on the refinery business alone without worrying about exploration and production. Picking this side of the crude oil industry has been very profitable in 2012.

#5: Bank of America

Financial stocks were some of the worst performers in 2011. But as the old saying goes, “past performance is not indicative of future returns.”

Thanks to a recovery in mortgage lending and some continued restructuring via layoffs, Bank of America (NYSE:BAC) has nearly doubled in 2012. Though the dividend remains a mere penny a quarter and the financial stock has not petitioned the Federal Reserve for another increase, it’s undeniable that the share prices are showing a lot of investor confidence, and Wall Street thinks this company is on the resurgence.

#4: Expedia

In 2012, online travel stock Expedia (NASDAQ:EXPE) has surged about 100% as of this writing thanks to aggressive international expansion. There were big doubts about whether the spin-off of Tripadvisor (NASDAQ:TRIP) a year ago would expose the company as a slower-growing investment on its own, but investors have been very pleased with continued success at EXPE despite relatively brisk competition from other sites like Priceline.com (NASDAQ:PCLN) and upstarts like Priceline acquisition Kayak.com (NASDAQ:KYAK).

#3: Whirlpool

Along with a housing recovery, some related stocks have seen a nice uptick, too. That’s the case at Whirlpool (NYSE:WHR), which announced a big restructuring in 2011 that included 5,000 layoffs. The company now has a reasonable debt level and a nice 2% dividend even though shares have more than doubled in the last 12 months. Thanks to its strong brand name, Whirlpool has managed to tap into pent-up demand and growth in housing. WHR stock is up about 110% this year (as of this writing) as a result.

#2: Sprint Nextel

Telecom Sprint (NYSE:S) has surged almost 140% in 2012 despite the fact that the company hasn’t turned a profit since well before the financial crisis. However, narrower losses and a network overhaul to make it more competitive has some investors looking up. Most importantly, a failed merger between AT&T (NYSE:T) and T-Mobile left many thinking that regulators firmly believe in the idea of multiple wireless carriers and competition — meaning as the underdog in the space, Sprint has friends in high places that will protect it should push come to shove with either AT&T or Verizon (NYSE:VZ).

#1: PulteGroup

Homebuilder PulteGroup (NYSE:PHM) has exploded about 160% year-to-date thanks to a return to profitability and the hopes of a housing recovery. The company was bleeding cash as housing starts languished, but strength in the mortgage market has bolstered optimism and caused shares to soar. Though easily the best-performing stock in the S&P, many peers in the sector have also enjoyed outperformance in 2012, so it has been quite a year all around for housing companies.

Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.

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