Tuesday's Biggest Stock Stars

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Here at The Fool, we usually don't pay attention to day-to-day price gyrations. Instead, we prefer to track each business's intrinsic value, which, by its very nature, changes a lot less frequently than Mr. Market's wild swings would have you believe.    

But some price moves are just so big that investors should at least take notice -- especially when we Fools could have seen them coming.

The big winners  
With that in mind, I've summoned our Motley Fool CAPS community to highlight yesterday's biggest gainers among the stocks with a top CAPS rating of five stars. I've also included a possible explanation -- where I could find one, of course -- for each move.

Without further ado:

Company	Yesterday's % gain	Probable catalyst
Aluminum Corp. of China (NYSE: ACH)	8.88%	Rise in commodities prices
Cogent (Nasdaq: COGT)	8.44%	Settled lawsuit with Northrop Grumman Corp.
Aurizon Mines	7.55%	Rise in commodities prices
Astronics (Nasdaq: ATRO)	7.52%	N/A
Smith Micro Software (Nasdaq: SMSI)	7.19%	Signed publishing agreement with VMware

Did CAPS predict the pop?
The reason I selected the biggest five-star gainers, as opposed to the market's biggest overall winners, is simple: Stocks go up all the time, but unless you were able predict the pop beforehand, what does it matter? 

Through a consensus of more than 65,000 Fools in CAPS, our community considers its five-star stocks the most likely to outperform the market. By reverse-engineering some of the arguments made for these picks, our odds of finding the next big winner will surely improve.

For example, Cogent, a provider of automated fingerprint identification systems (AFIS), has been a longtime favorite in our CAPS community, with 420 players bullish about its future. The fact that it's a formal selection of our Hidden Gems Pay Dirt service likely has something to do with that, but a 44% return since the pick was made doesn't hurt, either.

Yesterday's pop came after Cogent's former partner, Northrop Grumman, agreed to pay it $60 million to settle various research and licensing claims. What I'm most fascinated by is how the Pay Dirt team -- along with various other CAPS Fools -- worked the Northrop lawsuit into their valuation of Cogent several months ago.

Back in February, CAPS All-Star TMFBreakerJava wrote:

They have superior technology, which promises increased accuracy in matching individual readings against the enormous databases of stored fingerprints in an acceptable period of time. Coming off a poor year, the stock price has been beaten down, and the prospect of a successful lawsuit outcome provides an additional potential upside for the stock. ... Buy now for superior returns. [Emphasis mine.]

TMFBreakerJava is thumping the market by 38% since making that call.

The Foolish takeaway? Pay attention to the various details and ongoing developments that surround certain companies. If you look hard enough, you'll often find stocks with hidden potential upside that Mr. Market isn't even considering. These embedded "call options" can drastically tilt the risk/reward scenarios in your favor.

Now for the losers
Of course, winning isn't everything in the stock market. Stocks go down, too -- and oftentimes very, very fast.

Here are yesterday's biggest one-star decliners:  

Company	Yesterday's % loss	Probable catalyst
Unifi (NYSE: UFI)	(8.23%)	Uncertainty regarding ongoing restructuring
BRT Realty Trust (NYSE: BRT)	(7.03%)	Analyst downgrade
Raser Technologies	(6.51%)	N/A
Source Interlink Companies	(6.43%)	Decline in Q2 earnings
Gander Mountain (Nasdaq: GMTN)	(5.14%)	Possible theft of Pennsylvania store computer

Did CAPS call the fall?
Whereas Fools believe five-star stocks will outperform, one-star stocks inspire the least confidence from our CAPS community. By investigating a few of the bearish arguments made for these losers, we should have a better chance of averting portfolio disaster in the future.  

Take, for instance, this informative (not to mention entertaining) Gander Mountain underperform pitch found in CAPS:

Of all the outdoor retailers, this by far is the least impressive. Most of the sales employees have no idea what they are selling. There is no online presence, so forget about ordering and quick delivery. When compared to Cabela's and Bass Pro Shop, going to Gander Mountain is like expecting Disney World, and instead going on vacation with the guy that doesn't have a Capital One Card.

Gander Mountain is down 30% since CAPS All-Star venaca penned that pitch in February. Not bad. But the most ardent bear has got to be my Foolish colleague David Meier, who spelled out this detailed underperform case against GMTN in June. David highlighted Gander's inferior competitive position, poor returns on invested capital, and irrationally high valuation -- the stock has gone on to sink 43%.

Though yesterday's fall was the result of the possible theft of computer equipment containing certain customer transaction information relating to a single store, Gander Mountain's nosedive over the last six months reminds us Fools to stay away from second-rate companies as much as possible -- especially when the price isn't compensating investors to take on the additional risk.

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. It's absolutely free -- and a lot of fun!