Thursday's Biggest Winners and Losers

Hey there, Fools. I've summoned our Motley Fool CAPS community once again to highlight a few of Thursday's biggest winners among the stocks with a top rating of five stars.

Without further ado:

Company	Yesterday's Gain
SAIC (NYSE: SAI  )	6.45%
NATCO Group	3.23%
American Eagle Outfitters (NYSE: AEO  )	3.02%
Apache (NYSE: APA  )	2.37%
McDermott International (NYSE: MDR  )	1.94%

There's a reason why I selected notable five-star gainers, as opposed to other big-name winners making noise on Thursday. Stocks go up all the time, but unless you were able to predict the pop, what does it matter?  

Our community of more than 115,000 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: Since its inception in 2006, five-star stocks are beating the market by 12 points, annualized.

Written in the (five) stars?
For example, an overwhelming 99% of the 188 CAPS All-Stars who've rated Motley Fool Inside Value recommendation SAIC have a bullish opinion of the stock.

Less than three weeks ago, CAPS member greenwave3 explained why the California-based defense contractor seems poised for profits:

As long as Americans keep paying taxes, these guys will continue to earn big government contracts. They are a "preferred vendor" of sorts to the U.S. government and they receive contracts from the military, as well as other government agencies.

In line with that call, shares of SAIC spiked yesterday after the company posted better-than-expected second-quarter results, and said it had landed yet another contract from the U.S. Army, valued at up to $20 million.

The bullish lesson
Pay attention to burgeoning companies that make a habit of signing blockbuster deals. One of the keys to investing is finding an economic moat, and a long track record of contract wins might indicate that the company does indeed have one in the form of high switching costs. As CAPS' greenwave3 understands, if the business model is "sticky" enough, major contracts will likely continue to blow in that company's direction.

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

Here are five of Thursday's biggest one-star decliners:  

Company	Yesterday's Loss
Hovnanian Enterprises (NYSE: HOV  )	17.42%
Fannie Mae (NYSE: FNM  )	12.30%
Freddie Mac	7.99%
Overstock.com	7.60%
Merrill Lynch (NYSE: MER  )	7.48%

One-star stocks inspire the least confidence from our CAPS members, and for pretty good reason: Since CAPS started, one-star stocks have dropped an average of 11.4%, annualized.

Did CAPS call the fall?
In late March, for instance, CAPS member jimmygman shared these bearish musings about Hovnanian Enterprises:

The problem is just gonna keep compounding as long as the slow economy (sidebar: RECESSION) is prevalant. ... Add -on climbing gas prices, increasesd unemployment figures and the continued devaluation of the dollar will probably drive this stk down another 30-40%.

Almost exactly as that pitch forecast, shares of the New Jersey-based homebuilder are down 43% since that call. In fact, yesterday's drop came after the company's third-quarter loss more than doubled from a year ago on continued housing weakness.

The bearish takeaway
What goes down doesn't have to come back up. Trying to catch a falling knife can be a profitable strategy, but only if you can conclude -- with a reasonable amount of certainty -- that the price already has the worst-case scenario baked into it. If a company's industry and financial picture are too hazy and uncertain to run a meaningful valuation, there's really no telling how low the stock can go. 

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, tens of 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!