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:

Company

Yesterday's % Gain

Atrion

15.65%

Terex (NYSE: TEX  )

13.62%

Genesee & Wyoming (NYSE: GWR  )

12.21%

WSP Holdings

12.08%

Nasdaq OMX Group (Nasdaq: NDAQ  )

12.05%

There's a simple reason why I selected the largest five-star gainers, as opposed to other big-name winners making noise on Wednesday, like low-rated financials Washington Mutual and Bank of America (NYSE: BAC  ) . Stocks go up all the time, but unless you were able to predict the pop, what does it matter?

Our community of more than 110,000 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 its first year, top-rated stocks returned roughly 28%.

Written in the (five) stars?
For example, of the 390 CAPS All-Stars who've rated Terex, just three have a bearish opinion. Fueled by that overwhelming Foolish support, the Connecticut-based construction equipment maker has been a five-star stock for more than six months straight.

Just two days ago, CAPS member mitleg touched on Terex's tasty price:

This stock is selling at a very nice discount. The pe is below 7. The peg is about .5. ... The weakness in construction appears to have hit the stock price less than the bottom line financials. Quite a bit of their product line goes to operators not feeling the cyclical bit of the market. ... I expect this to rebound nicely.

Consistent with that call, shares of Terex surged yesterday, after the company's board of directors authorized a $500 million increase to its buyback program, bringing the total amount to $1.2 billion. That action might suggest that the stock is indeed quite cheap.

The bullish lesson?
When the shares of a quality company seem cheap, always try to ascertain why. If Mr. Market, in your opinion, is way off with his appraisal, it might be a perfect low risk, high reward situation. By buying into a cash-rich company at a good price, you leave yourself plenty of "upside" that can be unlocked in several different ways -- be it through buyout, management buyback, or simply the market coming back to its senses.

And now for the losers ...
Of course, winning isn't everything in the stock market. Here are Wednesday's biggest one-star decliners:

Company

Yesterday's % Loss

USANA Health Sciences (Nasdaq: USNA  )

12.59%

Ener1

7.51%

Bearingpoint

6.41%

American Land Lease

5.66%

Gannett (NYSE: GCI  )

4.50%

One-star stocks inspire the least confidence from our CAPS members. So although yesterday's drop in highly rated Seagate Technology (NYSE: STX  ) 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?
A couple of weeks ago, for instance, CAPS All-Star SapphireSeas published this simple bearish thought on Gannett: "Although Gannett is in a better position than most newspaper publishers, they will suffer with the rest as a broad declining trend in hard copy circulation gut punches -- then remolds -- the entire industry."

In line with that call, shares of the USA TODAY publisher fell yesterday after posting a 36% drop in its second-quarter profit as the newspaper industry, as a whole, continues to struggle.

The bearish takeaway?
Always make sure the business winds are in your favor. For market-beating returns, it's crucial that you position your portfolio to take advantage of massive shifts in commerce, rather than struggle against where the world is headed. As CAPS' SapphireSeas understands, investing in a "buggy whip" -- even if it's the best buggy whip -- is one of the easiest ways to crash and burn in the market.

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!

Genesee & Wyoming is a Motley Fool Hidden Gems recommendation. Nasdaq OMX Group is an Inside Value recommendation. Bank of America is an Income Investor pick. The Fool owns shares of Terex. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. The Fool's disclosure policy is always the big winner.


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