Monday's Biggest Stock Stars

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:

The reason I selected the largest five-star gainers, as opposed to other big-name winners making noise on Monday -- like China Digital TV (NYSE:STV) -- 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 75,000 CAPS Fools considers its five-star stocks the most likely to outperform the market.

Written in the (five) stars?
For example, Genlyte Group, the world's largest producer of lighting products, received its first ever five-star rating just a couple of weeks ago. In fact, co-founding Fool Tom Gardner formally recommended the stock to Motley Fool Stock Advisor subscribers this past October. So, naturally, our community was pretty delighted when electronics behemoth Philips Electronics (NYSE:PHG) said yesterday that it will buy Genlyte for $2.7 billion -- a whopping 52% premium over Friday's closing price.

This bull pitch -- by CAPS player Patrick6k back in February -- sheds some light on what many Fools (and Philips' management team) found so attractive in the first place:

Genlyte GP Inc. is a typical boring, yet profitable company that quietly turns thousandaires into millionaires. They sell light fixtures. Exciting huh? ... in the words of Ben Stein from his ever famous Visine commercials ... wow.

This company has a solid management track record. Couple this with good [return on equity], fairly thick profit margins, and significant inside ownership and you got yourself a company to buy for your Roth IRA and hold until retirement.

The bullish takeaway? Boring stories often translate into the market's best bargains. Oftentimes, Wall Street can get so impatient with unexciting, industry-dominating stalwarts that they bid them down to ridiculous prices at any sign of a slowdown. For long-term investors who enjoy quality stocks on the cheap -- just as major conglomerates such as Philips do -- that's when you should consider backing up the truck.

And now for the losers ...
Of course, winning isn't everything in the stock market.

Here are Monday's biggest one-star decliners:  

One-star stocks inspire the least confidence from our CAPS players. So while Monday's drop in three-star stock Genvec (NASDAQ:GNVC) may have caught some Fools off guard, one-star stocks are fully expected to fall -- and fall hard.

Did CAPS call the fall?
Take, for instance, this Radio One bear pitch from CAPS phenom pencils2 just a few short weeks ago:

1. Over the past couple years cash flow production has really fallen off as well as net income. Fiscal 2006 cash flow: $77.54 million. [Trailing 12 months] Cash flow: $60.76 million. Fiscal 2006 EPS: $0.24. TTM EPS: $0.16.

2. Company has a ridiculous $937.5 million in debt with only $25.98 million in cash. How are they going to pay this mountain of debt off if the business isn't producing?

3. One has to question if a radio business has much of an opportunity long-term to expand. With satellite radio working its way up, the long-term outlook for the radio industry doesn't look too rosy.

The Maryland-based radio broadcaster is already down 32% since that call and has fallen a depressing 72% over the past year.

The bearish lesson? To get a feel for a stock, always remember to break down the entire picture. With investing, there are myriad quantitative factors (financials, price multiples, etc.) and qualitative factors (industry outlook, competitive position, etc.) that must be considered. So if you ever come across a stock like Radio One -- whose dismal numbers essentially reflect its gloomy industry outlook -- it's probably best to take a pass.  

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!