Monday's Biggest Stock Stars

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

Without further ado:

There's a reason why I selected notable five-star gainers, as opposed to other big-name winners making noise on Monday, like low-rated financials Wachovia (NYSE: WB) and Citigroup. 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 97% of the 187 CAPS All-Stars who've rated Motley Fool Stock Advisor pick Umpqua Holdings have a bullish opinion of the stock.

Just last week, CAPS member nonzerosum explained why the Oregon-based regional bank looked like a bargain:

[Umpqua Holdings] has been lumped together with the bad banks. But judging by its lovely cash flow it is doing well which makes it very cheap. Their loss reserves may be too conservative so we could see a nice reversal in earnings when the recession is over.

Consistent with that cash flow-focused call, shares of Umpqua Holdings spiked yesterday after the company maintained its regular quarterly dividend of $0.19.

The bullish lesson?
Always follow the cash flow. Investing, after all, is about putting money up front today so you can get more of it in return tomorrow. As CAPS' nonzerosum understands, if a company consistently generates healthy cash, management at least has the opportunity to take shareholder-friendly actions like buying back stock, growing the business organically, or paying dynasty-building dividends.

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

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

While yesterday's drop in highly rated coal stocks Peabody Energy (NYSE: BTU) and Arch Coal 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?
Just yesterday, for instance, CAPS member dbillett1 chimed in on what the recent takeover of Fannie Mae and Freddie Mac might mean for common shareholders:

This may be great for the overall market since this brings back much needed security in this sector. However it is terrible for stock holders. There will be no dividends while under fed control and there is much anticipation of both companies having assets stripped away as many people believe that these companies simply cannot continue with current biz model. Expect a completely revamped model in the future.

The bearish takeaway?
There's no such thing as a free lunch. As CAPS' dbillett1 understands, a bailout by the U.S. government -- or any other entity, for that matter -- doesn't always mean that current shareholders stand to benefit. As Warren Buffett explained it in an interview yesterday, "assuming there's anything left for the common [shareholders] four, five years down the road, the treasury will get 80% of it. They're getting paid very well for stepping 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 in to CAPS today and start participating. It's absolutely free -- and a lot of fun!