Wednesday's Biggest Stock Stars

Hey there, Fools. I've summoned our Motley Fool CAPS community once again to highlight Wednesday'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 Wednesday, such as one-star automaker General Motors (NYSE: GM). Stocks go up all the time, but unless you were able to predict the pop, what does it matter?   

Our community of more than 100,000 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, all 198 CAPS All-Stars who've rated Motley Fool Stock Advisor pick Double-Take Software have a bullish opinion on the company. On the strength of that top-notch support, the Massachusetts-based provider of data protection and recovery software has kept a perfect rating for more than six months straight.

One month ago, CAPS All-Star rivilian offered up this bullish take on Double-Take:  

DBTK makes good money. It does this in a market that can only grow over the coming decades. And, for the smaller business customer, their solution is a welcome alternative to solutions by behemoths offered to other behemoths.

With low P/E and PEG at 0.74 (on 4APR08), what's not to like about a company making money in an expanding market?

Consistent with that call, shares of Double-Take surged yesterday after the company posted adjusted first-quarter earnings above Wall Street's guesstimates and announced upside guidance for the second quarter, to boot.

The bullish lesson?
Learn to combine the best of both value and growth investing worlds. As long as you make it a point to never overpay for growth, buying into profitable small-caps with ever-expanding market opportunities -- a la Double-Take -- is a proven way to long-term, market-thumping gains. As Warren Buffett once wrote, "Put together a portfolio of companies whose aggregate earnings march upward over the years, and so also will the portfolio's market value."

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

Here are Wednesday's biggest one-star decliners:   

One-star stocks inspire the least confidence from our CAPS players. So although yesterday's drop in highly rated Garmin (Nasdaq: GRMN) 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?
Last March, for instance, CAPS All-Star ddberg helped sound the alarm bells on Corus Bankshares:

Has a significant commercial real estate portfolio (as a percentage of its entire loan business), particularly in condo-bubble areas like Las Vegas and Florida. If builders and developers start to (continue to?) struggle due to the continuing real estate swoon, write-offs will follow.

Just as ddberg had warned, shares of Corus plunged yesterday after the Chicago-based bank posted a steep decline in its first-quarter earnings, on rising mortgage-related charge-offs and loan-loss provisions. Management also said it would eliminate its dividend to help weather the storm.

The bearish takeaway?
Get out of dangerous areas while you can! Just as companies without an ounce of product diversification should give Fools some pause, those that are overly exposed to but a few geographic regions should cause some concern. When things are booming, geographic risk might seem trivial, but as Corus demonstrates, any material troubles in those areas could spell doom for investors.

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!