Thursday's Biggest Stock Stars

Hey there, Fools. I've summoned our Motley Fool CAPS community once again to highlight Thursday's biggest gainers among stocks with a top rating of five stars.

Without further ado:

There's a simple reason why I selected the largest five-star gainers, as opposed to other big-name winners making noise on Thursday, like one-star stock H&R Block (NYSE:HRB). Stocks go up all the time, but unless you were able to predict the pop, what does it matter?

Our community of more than 85,000 CAPS Fools considers its five-star stocks the most likely to outperform the market. And so far, CAPS has indeed proven its market-beating prowess: Over its first year, top-rated stocks returned roughly 28%.

Written in the (five) stars?
For example, out of the 54 CAPS All-Stars who've rated Permian Basin Royalty Trust, not one is bearish. On the strength of that top-notch support, the Texas-based oil and natural gas trust has been a five-star stock for the last two months.

Back in June, CAPS player racetracker justified his trust in the trust:

Unless there is a major change in energy usage I feel this stock should continue to outperform the market ... While I don't expect the major increase in valuation that has happened in the past few years to continue, it will continue to return a nice dividend and should still continue to appreciate in price as oil and gas prices increase.

Permian Basin is up an impressive 71% since that call -- far better than even racetracker had expected.

The bullish takeaway?
Boring dividend-payers don't always mean boring returns. In fact, buying into financially strong, well-positioned dividend stocks is one of the more reliable ways to trounce the market ... and with a lot less volatility, too. In today's manic market, a little dividend stability can go a long way toward protecting your portfolio. 

And now for the losers ...
Of course, winning isn't everything in the stock market.

Here are Thursday's biggest one-star decliners:   

One-star stocks inspire the least confidence from our CAPS players. So although yesterday's drop in highly rated American Eagle Outfitters (NYSE:AEO) may have caught our community off-guard, one-star stocks are fully expected to fall hard. In the first year, CAPS' lowest-rated stocks dropped an average of 16.6%.

Did CAPS call the fall?
Just last week, for instance, CAPS player Haventaclue1 quickly commented on the troubles surrounding Thornburg Mortgage: "Another casualty of the mortgage meltdown. Now getting margin calls on debt, definitely no good, no buyers in sight as credit is still tight."

Consistent with Haventaclue's take, shares of the embattled lender plunged another 50% yesterday after failing to meet a $28 million margin call from JPMorgan Chase (NYSE:JPM) because of a series of cross-defaults.

The bearish lesson?
Thornburg's liquidity woes are a reminder of how dangerous leverage can be in our own portfolios. As investors, our job is to take advantage of Mr. Market's manic behavior, but with the excessive use of margin, we have no choice but to rely on it. Like Peter Lynch says, "If you sell in desperation, you always sell cheap."  

The final Foolish move
Investors often focus strictly on stock price movements (or the results), without realizing that developing a proper stock-picking process counts most.

Over at Motley Fool CAPS, thousands of investors are Foolishly sharing insightful investment tips to help identify tomorrow's big movers. Over time, consistently reverse-engineering winning -- and losing -- stocks will help you become a more Foolish investor.

Log in to CAPS today and start participating. It's absolutely free -- and a lot of fun!