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5 Best Performing Bank Stocks in 2012

Stocks in this article: BACSNVRFDRLBPOP

Updated to reflect Warren Buffett's comments on Bank of America, TheStreet's poll results.

NEW YORK ( TheStreet) -- Bank stocks have outperformed in 2012 in a "risk on" rally that has bid up many of the previous year's underperformers including Bank of America (BAC) and Citigroup (C).

Hopes that the European crisis might not have a significant impact on the U.S. economy and expectations that there will be greater clarity on the regulatory front have helped turn the tide for bank stocks.

Other catalysts include banks' plans to return more capital to shareholders, policies addressing the housing market and of course an improving domestic economy.

Still, the industry's worst is not behind it with banks continuing to be slapped with lawsuits and the sentiment in Washington towards Wall Street still largely hostile.

TheStreet shortlisted the five banks that have rallied the most in 2012, focusing on banks that have an average trading volume of more than 500,000 and a market price greater than $1, to eliminate the more questionable names.

The banks that have rallied in the last two months have largely been the weaker names, some of which are yet to repay government bailout money. However, their earnings upside could be significant if the economy strengthens.

Here are the biggest winners in 2012, ranked in ascending order of year-to-date returns.

5. Popular

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Shares of Puerto Rico-based Popular (BPOP) have gained 33% in 2012 so far, but is still down 43% over a one-year period.

Popular's shares fell 56% in 2011.

The stock was featured at the top of TheStreet'slist of the "10 Bank Stocks Trading Below Book with Up to 85% Upside ."

Popular still owes $935 million in TARP money, after having converted the government's preferred shares to trust-preferred shares in August 2009, while paying a $13 million exchange fee for the privilege.

Sandler O' Neill analyst Michael Sarcone expects the bank to hold off repaying bailout funds till atleast 2013, with the company reiterating that it will not repay TARP until it makes sense for shareholders. "We think this is a positive and shareholders will view it as such because it lowers the likelihood of a book value dilutive capital raise," Sarcone wrote in a report following fourth-quarter results.

The management has guided toward a 2012 net income range of $185 to $200 million, which is 15% to 20% higher than 2011 net income of $161 million and equates to an EPS range of 18 to 20 cents.

The shares currently trade for 0.6 times their Dec. 30 tangible book value of $3.08 and about 8 times its 2012 earnings per share consensus estimate of 23 cents.

The stock isn't very actively covered. Out of the five analysts covering the stock, three rate it an outperform or buy while two maintain a hold rating.

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