Hey there, Fools. I've summoned our Motley Fool CAPS community once again to highlight Monday'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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Globecomm Systems (Nasdaq: GCOM )
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24.88%
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VASCO Data Security International (Nasdaq: VDSI )
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14.56%
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Century Casinos
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8.35%
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Park-Ohio Holdings
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6.12%
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Portfolio Recovery Associates (Nasdaq: PRAA )
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5.26%
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The reason I selected some of the largest five-star gainers, as opposed to other big-name winners making noise on Monday -- such as airline stocks Southwest Airlines (NYSE: LUV ) and Northwest Airlines -- is simple: Stocks go up all the time, but unless you were able predict the pop, what does it matter?
Our community of more than 74,000 Fools in CAPS considers its five-star stocks the most likely to outperform the market.
Written in the (five) stars?
Globecomm Systems, for example, has maintained a five-star rating for the past four months straight. The New York-based satellite-communications company still has a relatively small following in CAPS, but so far, all 27 All-Stars who've rated the stock are bullish.
This outperform pitch -- by CAPS player WildManMac back in September 2006 -- gives us a peak into our community's thought process:
Small company that has a number of long-term solid contracts with both government and commercial customers. Long-term promises for growth and stability in a rapidly growing service. Satellite communication services are in demand and short supply. A long term winner. Not for the faint of heart.
Globecomm stock has risen a monstrous 123% since that call. In fact, yesterday's 25% gain came after the company announced a $9.9 million contract from the U.S. government to provide its Joint IP Modem (JIPM). Additionally, it's a deal that could be worth as much as $87 million if certain options are exercised over the next three years.
The bullish takeaway? Pay attention to small companies that make a habit of landing blockbuster deals. Just a couple of major contract wins can have an enormous impact on a tiny company, so focus on the reputable ones with big-industry trends in its favor. If those tailwinds are strong enough, major contracts will likely continue to blow in that company's direction.
And now for the losers ...
Of course, winning isn't everything in the stock market.
Here are Monday's biggest one-star decliners:
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Company
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Yesterday's % Loss
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ACA Capital Holdings
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29.43%
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Atherogenics (Nasdaq: AGIX )
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28.57%
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China
Finance Online (Nasdaq: JRJC )
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23.36%
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Quebecor World
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20.46%
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Basin Water
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19.25%
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One-star stocks inspire the least confidence from our CAPS players. So while Monday's massive drop in E*Trade Financial (Nasdaq: ETFC ) may have caught some investors off guard (it's currently a two-star stock in CAPS), our community fully expects one-star stocks to fall -- and fall hard.
Did CAPS call the fall?
Take, for instance, this Atherogenics underperform excerpt from thenakedtrader last March:
I highly doubt that the FDA would be inclined to grant approval without further testing. That probably means another 12-18 mo. before results, and there is a real question in my mind whether the company will survive that long. It has $152M in cash, but no revenue stream, $286M in debt ($86M of which comes due Sept. 2008), has a negative operating cash flow (of -$27M last year). If they have to fund yet another trial, it could bring them to the brink.
The Georgia-based drug manufacturer is down 72% since that call, and it's off by a gut-wrenching 92% year over year. In fact, yesterday's drop followed a company decision to discontinue a higher dose of its lead diabetes candidate because of safety issues. Naturally, the move was made after several discussions with the FDA. Just as thenakedtrader had figured.
The bearish lesson? Never just "believe" in a company's great potential. If you're looking into more speculative concerns, it's essential that you have a strong grasp of the economics, regulatory issues, and various other obstacles involved in actually bringing the product to market. Unless you have a real idea of a company's risk/reward profile, you'll always be at a disadvantage against other expert investors who do.
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!
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