The 3 Top S&P 500 Stocks in the 3rd Quarter

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The S&P 500 (SNPINDEX: ^GSPC) has done well this year, and the third quarter gave the index another 4% gain, pushing its return up to the 12% mark for 2017 so far. Even though the broad-based benchmark got support from hundreds of advancing stocks during the period, a few companies in particular were noteworthy for their strong performance. NRG Energy (NYSE: NRG), Gap (NYSE: GPS), and Michael Kors Holdings (NYSE: KORS) were the big winners for the quarter, and some investors think that they could have further to run in the remainder of 2017 and beyond.

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Stock

Q3 Return

NRG Energy

49%

Gap

34%

Michael Kors

32%

NRG has a power surge

NRG Energy was the biggest winner in the S&P 500, and it has a major restructuring initiative to thank for the move. The wholesale power company had made a big push into renewable energy, with billions of dollars of investment in renewable energy projects and purchases of a residential solar installation business and a maker of portable solar power products. Yet when the stock struggled during the downturn in renewable energy, NRG shareholders started to get restless.

The result came in July, when NRG said it would sell off most of its renewable energy assets and go back to focusing on its fossil fuel-based power generation business. The asset sales will go toward cutting debt, and operating cost reductions should also help NRG improve its capital structure. Yet many investors worry that by focusing on coal- and natural gas-powered plants will hurt NRG's competitive position in the future. It's clear that NRG's decision makes sense from a short-term perspective, but the jury's still out on whether it will prove short-sighted in the long run.

Gap stops falling

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Retail has been a tough industry for years, and retailers like Gap have struggled to find strategies to help them endure the downturn. In September, Gap finally made a move that many had hoped it would make: to focus in on its most lucrative brands. Gap said that it would aim at growing its Old Navy and Athleta store concepts, which have done better than its namesake Gap brand as well as Banana Republic. Old Navy is the larger of the two, but Athleta has found an audience in the red-hot athletic apparel space and is challenging longer-established rivals.

Stock analysts later agreed with Gap's decision, pushing the stock still higher. Investors will wait impatiently to see whether the strategic shift can pay off with better profits for Gap, but the stock's move suggests that their expectations are already extremely high. Any disappointment could make the recent jump go away in a hurry.

Kors aims higher

Elsewhere in retail, Michael Kors has also had to deal with challenging times. With the high-end fashion retailer, however, investors had much less ambitious hopes, and so even a quarter that had substantial bad news from a fundamental perspective was still enough to send the stock higher.

In its fiscal first-quarter report in early August, Kors said that revenue fell 4% on a drop of almost 6% in comparable sales, producing a 15% decline in net income. Yet the acquisition of Jimmy Choo showed Kors' ambition to turn things around, and the Runway 2020 strategic plan will involve updating fashions and building stronger relationships with customers in order to get the company's numbers moving back in the right direction. It's too early to tell whether those efforts will be successful, but shareholders were happy just to see Kors trying something.

Kors, Gap, and NRG Energy have made smart moves to bolster their stock over the past few months, but all of them still have unanswered questions. Investors should watch these three stocks closely to decide whether they're worth the higher share price.

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Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool owns shares of Michael Kors Holdings. The Motley Fool has a disclosure policy.