Tuesday's Biggest Stock Stars

Hey there, Fools. I've summoned our Motley Fool CAPS community once again to highlight some of Tuesday's biggest gainers among the stocks with a top rating of five stars.

Without further ado:

There's a simple reason why I selected the largest five-star gainers, as opposed to other big-name winners making noise on Tuesday, like Starbucks (Nasdaq: SBUX). Stocks go up all the time, but unless you were able to predict the pop, what does it matter?  

Our community of more than 80,000 CAPS Fools considers its five-star stocks the most likely to outperform the market. And so far, CAPS has indeed proven its market-beating prowess: over the last year, top-rated stocks have returned roughly 28%.

Written in the (five) stars?
For example, out of the 177 players who've rated China-based Wonder Auto Technology, 176 of them are bullish. And of the 40 All-Star investors who've chimed in on the small-cap auto parts supplier, not a single one is bearish.

CAPS All-Star ksnively -- with this bull pitch excerpt -- was one of the first to bring a sense of, uh, Wonder to our Foolish community:

Strong earnings growth
61% insider ownership (mostly held by Qingjie Zhao, CEO)
Very little institutional ownership
Very little analyst coverage
Improving margins

Wonder Auto is already up a massive 68% since that call less than three months ago.

The bullish takeaway? Don't be afraid to fly under the radar the way our team at Motley Fool Hidden Gems does every day; screening for underfollowed, rapidly growing small-caps -- with high levels of insider ownership -- often leads to market-crushing opportunities. If it's multibagger returns you're craving for, you almost need to look where Wall Street's wise men aren't.

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

Here are some of Tuesday's biggest one-star decliners:  

One-star stocks inspire the least confidence from our CAPS players. So while yesterday's drop in four-star stock Intuitive Surgical (Nasdaq: ISRG) may have caught our community off guard, one-star stocks are fully expected to fall hard. Over the last year, CAPS' lowest-rated stocks dropped an average of 16.6%.

Did CAPS call the fall?
Take, for instance, this Credence Systems bear call -- by CAPS All-Star NetscribeTech -- almost one year ago:

The ATE (Automatic Test Equipment) industry is highly competitive and includes large firms such as Verigy (Nasdaq: VRGY), Teradyne, and Advantest. Characterized by aggressive pricing and highly volatile segment, the market offers little opportunities to nurture.

As ATE market has matured, it is unlikely that this company will experience the same growth that it saw in the past.

Shares of the California-based microchip testing firm are down 65% since that pitch. In fact, yesterday's huge drop came after management reported fourth-quarter sales below Wall Street's forecasts, and said they expect to post a loss in the first quarter, which is consistent with Netscribe's gloomy view last year.

The bearish lesson? Before digging down on a specific company, try to have a good grasp of the entire industry landscape. That includes knowing the general outlook for the sector, and, ideally, how each of the competitive forces affect the industry in question. If you come to find out that the whole industry isn't that attractive, you might be better off just moving on entirely.  

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, above all else, 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!