The trend is your friend. It's one of the most basic and powerful concepts of investing.
The past four years have been a great example of that. After rebounding sharply In March of 2009, the averages have been on a miraculous run higher, defying all the bears and negative data to hit a series of new multi-year highs. Any pullback in the past four years was a chance to buy low and score quick gains. Take a look at the big rebound in the S&P 500 below.
The bullish trend in 2012 lifted many individual stocks to even bigger gains. The list includes Priceline Inc. (Nasdaq: PCLN), up 24%; Apple Inc. (Nasdaq: AAPL), up 25%; and Amazon (Nasdaq: AMZN), up an impressive 43%.
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But even though these were the stocks that stole the headlines in 2012, there was another group of stocks that beat them all. In fact, the lowest return in the group was 74%, with the high clocking in at an eye-popping 173%.
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I'm talking about the 10 stocks in the S&P 500 with the most relative strength in 2012. RSI (relative strength index) is an important and closely-watched indicator on the Street, helping traders and fund managers identify overbought or oversold conditions. The top 10 RSI stocks in 2012 have posted huge gains, pushing many to new all-time highs. But even though that has pushed some RSI stocks into overbought territory, signaling potential weakness in the short run, others are rolling into 2013 with this kind of momentum.
And that's a good thing. With momentum in hand and a full head of steam heading into 2013, these stocks are banking on the trend. Here they are...
Of these 10 stocks, three stand out as particularly good picks entering the new year...
1. Pulte Group (NYSE: PHM)
Home builders saw huge gains in 2012 as the housing industry began showing signs of recovery. That definitely includes this homebuilder, which produced a massive 137% return on the year. And those gains weren't based on pure speculation, because Pulte has seen a sharp rebound in earnings as well. The full-year 2012 estimate is up 33% in just the past 90 days, with analysts calling for earnings of 68 cents per share. The outlook into 2013 is also bullish, with earnings expected to almost double to $1.29 per share. These bullish earnings and earnings projections have Pulte trading at just 13 times expected earnings in 2013, a discount to the market and its peers.
2. Expedia Inc. (Nasdaq: EXPE)
Online travel agents have been red-hot, lifting Expedia to a big-time 95% gain in 2012. Expedia recently made a move to beef up its international presence, purchasing a majority stake in German-based travel website Trivago for $628 million. The acquisition is expected to give the company access to key markets all across western and central Europe that are less saturated than the United States. Expedia is also benefiting from the mobile trend, with higher booking volumes being driven by purchases routed through smartphones. Looking forward, analysts are expecting earnings of $3.28 per share in 2013, a 20% growth projection from 2012. Although Expedia's forward price-to-earnings (P/E) ratio of 25 isn't considered value, higher-growth companies in high-growth industries typically trade with higher valuations than this.
3. Marathon Petroleum Corp. (Nasdaq: MPC)
Refiners were the best performers in the energy industry in 2012, posting huge returns as crack-spreads (the profitability of refining a bare of crude) spiked to record highs. That lifted Marathon to an 85% gain in 2012. That's the highest amongst refiners in the S&P 500 Index, according to Bloomberg Marathon's outsized gain was driven by big upward revisions in earnings estimates. In the past 90 days, the full-year 2012 estimate has jumped 20% to $9.63 per share. That has shares of Marathon trading at just six times projected 2012 earnings, a sharp discount to the market and its peers.
Risks to Consider: These stocks have high RSI readings right now, making them vulnerable to short-term weakness. Momentum stocks are also known for more volatility than the index or large caps.
Action to Take --> The bullish trend in the market has lifted many individual stocks to even bigger gains. These 10 stocks were some of the biggest winners in 2012, producing returns that trounced the S&P 500. With the bullish trend still in play, these 10 stocks are in perfect position to ride that momentum into the new year.
Michael Vodicka does not personally hold positions in any securities mentioned in this article. StreetAuthority LLC does not hold positions in any securities mentioned in this article.