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:

There's a simple reason I selected the largest five-star gainers instead of other big-name winners making noise on Monday, like solar stocks Yingli Green Energy (NYSE: YGE) and Canadian Solar. Stocks go up all the time, but unless you are able to predict the pop, what does it matter?   

Our community of more than 83,000 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 120 players who've rated Highveld Steel & Vanadium, more than 97% are bullish. Several months ago, my Foolish colleague Matt Koppenheffer even highlighted the South African steel company as a highly rated stock on sale.        

This bull pitch, by CAPS player rwadington in January 2007, elaborated on the bargain opportunity the market presented:  

This company has been crushed over the past 52 weeks. However, it possesses great traits: Solid ROE/ROI, low debt, good income per employee versus the industry average, and good revenues and earnings growth.

Highveld Steel is up an impressive 57% since that call.  

The bullish takeaway? Learn to make Mr. Market your servant and not your master. By pouncing on financially strong, high-return, high-growth businesses when they're out of favor, you stack the investment odds overwhelmingly in your favor. After all, if you don't buy stocks when they're on sale, then when do you buy them?  

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 yesterday's drop in highly rated American Eagle Outfitters (NYSE: AEO) 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?
Back in March 2007, for instance, CAPS All-Star Terch articulated this small bit of simple BankUnited bear logic: "Dealing in subprime loans in South FLA? I can't see how this will turn out well!"

Shares of the Florida-based lender are down more than 68% since that call, back when the subprime mess was just starting to spread. In fact, yesterday's drop came after Fitch downgraded BankUnited's debt rating on Friday, citing the company's "rapid credit deterioration" as the primary reason for the cut.  

The bearish lesson? Always identify a stock's dangers before they come back to haunt you. One of the biggest mistakes investors make is underestimating the magnitude of risk that a company is exposed to. As CAPS' Terch demonstrated, even the simplest reason to stay away from a stock can go a long way in preventing portfolio disaster.      

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!