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 why I selected the largest five-star gainers, as opposed to other big-name winners making noise on Monday, like low-rated Motorola (NYSE:MOT). 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: Since its inception in 2006, five-star stocks are beating the market by 12%, annualized.

Written in the (five) stars?
For example, 97% of the 134 CAPS All-Stars who've rated Motley Fool Hidden Gems Pay Dirt pick PeopleSupport have a bullish opinion. Fueled by that Foolish backing, the small-cap provider of business process outsourcing (BPO) services has kept a four- or five-star rating for over six months straight.

One year ago, CAPS All-Star TMFBreakerThiel showed his support for PeopleSupport:

The rising Rupee and an increasing shortage of qualified workers is making it harder for Indian BPOs to remain competitive. They are looking to other countries like the Philippines to secure a growing workforce at low-cost.

PeopleSupport is already there, providing BPO services from the Philippines and Costa Rica. The stock is cheap compared to peers despite PS's record of strong growth.

Consistent with that call, shares of PeopleSupport surged yesterday after it agreed to be bought out by rival BPO provider Aegis for about $250 million, in a move that would give the India-based company access to more attractive markets.

The bullish lesson?
Always have a business owner's mind-set. As the Fool's own TMFBreakerThiel understands, all sorts of noise can depress a stock's price in the short term, but true investors are able to focus on the factors that really count over time. By buying quality companies in high-growth industries, positioned in fast-growing geographic markets, at bargain prices, you give yourself plenty of "upside" opportunities to earn an outsized return -- including a buyout by the big boys.

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 members. So although yesterday's drop in five-star energy stocks Chesapeake (NYSE:CHK) and VAALCO may have caught our community off guard, one-star stocks are fully expected to fall hard. Since CAPS started, one-star stocks have dropped an average of 11.4%, annualized.

Did CAPS call the fall?
In February, for instance, CAPS All-Star jeffro323 shared some simple bearish thoughts on Fleetwood Enterprises:

I can't imagine the demand increasing for the recreational vehicle (RV) side of the business with oil and gas at record highs. Wanna fill that 100+ gallon tank? Consumer spending is down. Oh yeah, they are not even making money.

Not surprisingly, shares of the California-based recreational vehicle maker are down 40% since that call. In fact, yesterday's drop came after a Commerce Department report showed a drop in consumer spending, reflecting the huge spike in gasoline costs -- exactly as jeffro323 had warned.

The bearish takeaway?
Clearly identify your risk exposures before they come back to hurt you. One of the most common mistakes we make as investors is underestimating how sensitive a business model can be to specific economic variables. As CAPS' jeffro323 understands, when gas prices are running rampant, selling gas-guzzling RVs isn't exactly the best business to be in.

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 into to CAPS today and start participating. It's absolutely free and a lot of fun!