Thursday's Biggest Stock Stars

We at the Fool usually don't pay attention to day-to-day price gyrations. But some price moves are just so big that investors should at least take notice -- especially when we 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.

Without further ado:

The reason I selected the biggest five-star gainers, as opposed to some of the largest overall winners -- such as Logitech International (NASDAQ:LOGI) and Rimage (NASDAQ:RIMG) -- is simple. Stocks go up all the time, but unless you were able to predict the pop, what does it matter?    

Through a consensus of more than 70,000 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, Tennessee-based Healthways, a provider of health and care support programs, has maintained a five-star rating for the last six months. Of course, as a two-time selection of our Motley Fool Stock Advisor newsletter -- up 81% and 38% on the first and second picks, respectively -- our community may be a tad partial. Nevertheless, the bullish arguments have stood pretty strong on their own.      

This outperform pitch -- pulled from Healthways' CAPS page -- gives us a prime example:  

With all of the baby boomers getting older and diabetes [numbers] predictably (sadly) going up, HWAY is positioned very nicely. Add that to the recent pullback in the price due to merging [delays], and I think now is a great time to jump in for the long term.

Since CAPS All-Star fogman24 penned that pitch one year ago, HWAY has returned a sweet 39%.

The bullish takeaway? One of the most potent paths to superior gains is to play the superior trends -- as long as you look to take advantage of price declines whenever Mr. Market offers them (as fogman did in the above example). By identifying excellent companies positioned to capitalize on powerful demographic tailwinds -- and buying them only at reasonable prices -- you'll have massive market-trouncing forces working in your favor.

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:   

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 Syntroleum underperform pitch written by CAPS All-Star moneyrocket last August:  

No earnings, no [F]CF growth to speak of. They produce nothing!! Recently licensed their CTL & GTL technology to Marathon oil for royalties. But will it be enough before they burn [through] all their cash in 2 years??? Unless their bet in Indonesia pays off, this is just dead money. Looks like they're trying to play the defense contract angle for their jet fuel, but this is only possible if the war in Iraq expands to Iran and our oil supply is disrupted.

Oklahoma-based Syntroleum, which seeks to convert natural gas into liquid hydrocarbons, is down 56% since that call.

The bearish lesson? Don't turn the stock market into a giant casino. Although it's certainly possible to make a fortune from complex technology early in its development, the odds are always stacked heavily against you -- especially if you think a company will continue burning cash well into the future (forever?).

It might not be the most exciting thing in the world, but when you "keep it real" and buy into companies that already produce steady, reliable, and growing cash flows, the chances of actually building wealth increase dramatically.

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, tens of 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 will educate you and enrich your life. It's amusing. And it's absolutely free!