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:

Company

Yesterday's % Gain

Harvest Natural Resources (NYSE: HNR  )

11.48%

Horsehead Holding (Nasdaq: ZINC  )

10.86%

Xinyuan Real Estate

10.63%

Golar LNG (Nasdaq: GLNG  )

10.30%

ICF International

9.34%

There's a simple reason why I selected the largest five-star gainers, as opposed to other big-name winners making noise on Monday, like one-star homebuilders Hovnanian Enterprises (NYSE: HOV  ) and Beazer Homes (again). Stocks go up all the time, but unless you were able to predict the pop, what does it matter?  

Our community of more than 82,000 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 209 CAPS players who've rated Harvest Natural Resources, which operates oil and gas properties in Venezuela, 96% are bullish. Of course, that Foolish support is easy to understand, given that HNR is one of value investing guru Mohnish Pabrai's largest holdings.      

This outperform pitch -- by CAPS All-Star pokeytax last May -- summed up the stock's "special" situation:  

[Venezuelan President] Hugo Chavez swiped some of their stuff and now they have to redo the contracts. That's priced in. Until the contracts are signed, they can't report any GAAP earnings. Once everything is dotted and crossed, they will go back to making beaucoup bucks. To quote Mohnish Pabrai, who tipped everyone off to this in the first place: "Heads, I win; tails, I don't lose much!"

Harvest Natural Resources is up 21% since then.

The bullish takeaway? Sometimes, it pays to steal ... investing ideas. By closely monitoring the moves of well-respected investment managers, you can create a powerful source of "best ideas" for your own portfolio. As long as you don't buy blindly and can also break down the investment thesis -- just as CAPS' pokeytax clearly could -- riding a proven money master's coattails can prove to be profitable.

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

Here are Monday's biggest one-star decliners:   

Company

Yesterday's % Loss

Systemax (NYSE: SYX  )

13.28%

Convera

12.34%

Targanta Therapeutic

10.23%

China Finance Online

8.67%

BlueLinx Holdings

6.92%

One-star stocks inspire the least confidence from our CAPS players. So while yesterday's drop in five-star stock Ceragon Networks (Nasdaq: CRNT  ) 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 Systemax underperform pitch -- by CAPS player xcgeek last March -- in response to the stock's phoenix-like rise during the previous year:

You can't tell me this stock goes up 300% while Dell (Nasdaq: DELL  ) , which is the most efficient and better producer in the market, can't fight a slide. SYX can't keep this up. It's going down.

Shares of the New York-based direct marketer of computer, electronic, and industrial products are down 39% since those words were written. In fact, yesterday's drop came after a Barron's article suggested the stock may drop even further on inquiries into its rebate accounting practices.

The bearish lesson? Always invest with a healthy dose of skepticism. If you're completely baffled as to how a company and its stock can perform so well -- especially in an industry already filled with behemoths -- it's probably best to keep your distance. To be fair, we're still too early in the Systemax story to know anything for sure, but we Fools should never forget that "if something's too good to be true, it probably is."  

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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