Friday's Biggest Stock Stars

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:

Company

Friday's % Gain

PetroChina (NYSE: PTR  )

11.82%

TBS International

9.38%

China Telecom (NYSE: CHA  )

8.98%

Aluminum Corp. of China (NYSE: ACH  )

7.44%

HDFC Bank (NYSE: HDB  )

6.81%

The reason I selected the biggest five-star gainers, as opposed to some of the largest overall winners -- like BEA Systems (Nasdaq: BEAS  ) and Heelys (Nasdaq: HLYS  ) -- is simple. Stocks go up all the time, but unless you were able predict the pop, 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.

Did CAPS predict the pop?
For example, India-based HDFC Bank has had more than 300 CAPS All-Stars make an "outperform" call on its stock, while only four have been bears.

This outperform pitch -- written by damastr back in March -- helps us understand why:

HDB is one of the fastest growing banks in India. It's also one of the two banking sector ADRs listed on the NYSE. It's been firing on all cylinders for the past few years, and has consistently grown earnings over 30%. With the Indian economy growing at about 9% per year, and India's burgeoning middle class, HDB is in an excellent position to keep growing at a fast clip. ... To boot, HDB is one of the most efficient banks with lowest percentage of bad loans and highest percentage of cash reserve ratio (% of cash reserve to loans made). HDB is a multibagger and a very very long term hold.

Since that call, HDFC Bank is up a whopping 75%.

The bullish takeaway? It's no secret: India represents one of the most, if not the most, explosive investment opportunities in the world. As long as you do your own due diligence and remain disciplined about price, buying into a few of India's "best-of-breed" companies might be a profitable decision over the long haul.   

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

Here are yesterday's biggest one-star decliners:  

Company

Friday's % Loss

TOUSA (NYSE: TOA  )

22.81%

City Telecom

15.35%

Advanced Battery Technologies

13.33%

Beazer Homes

7.40%

Impac Mortgage Holdings

7.32%

One-star stocks inspire the least confidence from our CAPS community. By investigating a few of the bearish arguments made for these losers, we'll have a better chance of averting portfolio disaster in the future.  

Did CAPS call the fall?
Take, for instance, this underperform pitch found on TOUSA's CAPS page:

With money getting tighter and this company still showing negative operating cash flow, negative quarterly revenue growth (YoY), a negative profit margin (-12.35%), and so very little owned by insiders (only 0.67%), I think this company will continue sliding downhill, with an occasional blip upbeat by the shorts (currently 25% of the float) covering their sales.           

The Florida-based homebuilder is down 67% since All-Star TheGarcipian penned that pitch last August, and off 92% year over year. In fact, Friday's 23% hit came after an analyst cut earnings estimates for 13 other housing stocks.

The bearish lesson? Follow the fundamentals. Regardless of how far a stock has fallen, there's never any guarantee that it's "due" to bounce back.

Certainly, being greedy when others are irrationally fearful is a good way to make money. But being greedy when others are justifiably fearful is a quick way to lose it.  

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.

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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