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, as opposed to other big-name winners making noise on Monday, such as low-rated automakers General Motors (NYSE: GM) and Ford. Stocks go up all the time, but unless you were able to predict the pop, what does it matter?  

Our community of more than 97,000 CAPS Fools considers its five-star stocks the most likely to outperform the market. And so far, CAPS has indeed proved its market-beating prowess: Over its first year, top-rated stocks returned roughly 28%.

Written in the (five) stars?
For example, out of the 373 CAPS All-Stars who've rated China Petroleum & Chemical, 97% have a bullish opinion. Fueled by that top-notch support, the Beijing-based oil and gas producer has kept a four or five-star rating for over six months straight.

Last month, CAPS All-Star ReInAd commented on the stock's apparent bargain-basement valuation:

China Petro is trading at a price to earnings of 10 in an industry that is selling at 15. China will continue to boom for the next decade and demand will be strong there. SNP is technically oversold now and presents a great buying opportunity.

China Petroleum has already risen about 20% since that call.

The bullish lesson?
Like any smart customer, always be sure to compare prices. There are many different ways to sniff out a bargain, but comparing a company's price-to-earnings ratio to that of its peers is one of the simplest and easiest to understand. As long as you're cognizant of its many limitations, relative valuation should be at least one step in your stock-appraisal process. 

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 although yesterday's drop in highly rated gold stocks Kinross Gold (NYSE: KGC) and Yamana Gold may have caught our community off guard, one-star stocks are fully expected to fall hard. In the first year, CAPS' lowest-rated stocks dropped an average of 16.6%.

Did CAPS call the fall?
Just few days ago, for instance, CAPS All-Star EMG114 warned us Fools of the dangers surrounding National City:

This industry is facing losses with the economic slowdown, so expect NCC stock to go down. Although they are a good company overall, they are going to be directly affected. ... Not good to buy now in this industry.

Consistent with that call, shares of National City plummeted yesterday after the Cleveland-based bank posted a $171 million first-quarter loss, slashed its dividend, and announced that it would raise $7 billion from equity investors to help stop the bleeding.

The bearish takeaway?
Learn to leave the past in the past. With the dynamics of today's business world changing so rapidly, relying strictly on historical performance to pick out future winners is one of the most dangerous things you can do in investing. As CAPS' EMG114 understands, even companies with good long-term track records can go south in a hurry if the industry landscape gets ugly enough.

The final Foolish move
Investors often focus strictly on stock-price movements 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!