We at the Fool usually don't pay attention to day-to-day price gyrations. We prefer to track each business' 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 rating of five stars.
Without further ado:
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Company
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Yesterday's % gain
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Aastrom Biosciences (Nasdaq: ASTM )
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12.30%
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Internet Initiative Japan
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11.08%
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KHD Humboldt Wedag International (NYSE: KHD )
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10.42%
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Gmarket (Nasdaq: GMKT )
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6.97%
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Tower Group
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5.61%
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The reason I selected the biggest five-star gainers, as opposed to the market's biggest overall winners or volume leaders -- such as Intel (Nasdaq: INTC ) and General Electric (NYSE: GE ) -- is simple: Stocks go up all the time, but unless you were able predict the pop beforehand, what does it matter?
Did CAPS predict the pop?
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, Gmarket, a South Korean e-commerce retailer, has had more than 200 CAPS players call an outperform on its stock, while just 11 have been bears.
This outperform pitch -- pulled from Gmarket's CAPS page -- gives us part of the company's appeal:
Gmarket has developed a free end-to-end e-commerce software solution for its marketplace that allows retailers of all sizes to upload, track, and manage inventory at scale. Its closest competitor Internet Auction, which is also called eBay Korea, does not offer similar features. With international plans and robust guidance, the shares of Gmarket Inc offer good long-term returns for investors in the rapidly growing e-commerce market of Korea.
Since CAPS All-Star NetscribeECommerce made that call last March, Gmarket has returned a whopping 78%.
The bullish takeaway? Always seek to own companies with a clear-cut competitive advantage. By figuring out exactly what it is that companies can and can't deliver for their target market, you'll be one step closer to identifying stocks that can and can't deliver for you.
Now for the losers
Of course, winning isn't everything in the stock market. Stocks go down, too -- and often very, very quickly.
Here are yesterday's biggest one-star decliners:
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Company
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Yesterday's % loss
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Interoil (AMEX: IOC )
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19.13%
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Globalstar
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9.87%
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Radian Group (NYSE: RDN )
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9.47%
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Sulphco
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8.96%
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Isramco
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7.95%
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Did CAPS call the fall?
One-star stocks inspire the least confidence from our CAPS community. By investigating a few of the bearish arguments CAPS players have made for these losers, we'll have a better chance of averting portfolio disaster in the future.
Take, for instance, this Interoil underperform pitch found in CAPS:
What's to like here? A quick look at the income and balance sheet reveals this company only makes money by issuing debt. That train only goes so far. Total equity sits just north of $100 million, while the market cap sits just north of $1 billion. Add in the recent 20% pop higher, and I've got a red thumb.
The Australia-based oil producer is down 40% since CAPS All-Star TMFselzhanik penned that timely pitch last May. The "red thumb" refers to the thumbs-down icon that our unloved stocks get in CAPS.
The bearish lesson? Trust a company's fundamentals -- not its stock price. In the short term, prices can climb to great heights based on noise, momentum, and investor optimism alone. But over the long run, the company's true economics eventually dictate its market value.
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!
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