Thursday's Biggest Stock Stars

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:

There's a reason why I selected notable five-star gainers, as opposed to other big-name winners making noise on Thursday, like low-rated financials Wachovia and Thornburg Mortgage (NYSE:TMA). 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. 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, 97% of the 169 CAPS All-Stars who've rated Motley Fool Stock Advisor pick Umpqua Holdings have a positive opinion of the stock.

In July, CAPS member kbhermosa summed up the bull case in a few simple lines: "Small regional bank with a solid balance sheet, minimal exposure to the sub-prime mortgage fiasco, great management team."

Shares of Umpqua Holdings are already up an impressive 94% since that call.

The bullish lesson?
Take advantage when Mr. Market throws an attractive baby out with the bathwater. When times get scary, investors tend to sell stocks haphazardly, based simply on the sector they belong to, rather than taking things on a case-by-case basis. Our CAPS community has long believed that Umpqua Holdings would not only survive, but thrive, even during the credit mess. The stock's slide in the first half of 2008 provided Fools with a dynamic opportunity.

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:   

While yesterday's drop in five-star miners Vale (NYSE:RIO) and Freeport McMoRan Copper & Gold 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?
Last month, for instance, CAPS All-Star cauthenc was already raising a red flag on General Growth Properties:

the CEO of this company was forced to sell a LARGE portion of his shares in a MARGIN CALL... If the CEO buys when he feels the company is going up and then the company tanks, what does that say about the company's leadership and prospects?

Of course, in line with that call, shares of General Growth plunged nearly 50% yesterday, after The Wall Street Journal reported that several executives were indeed unloading a heap of their stake in the real estate investment trust.

The bearish takeaway?
When management is running for the hills, you might want to think twice about sitting still. It's true that insiders may sell for various reasons that have nothing to do with their outlook on a business, but why take the chance when many sell large portions in a short period of time? As CAPS' cauthenc understands, there's no reason to own a company whose own management is fleeing the scene, when you can invest with managers (and founders) who own tons of stock, who hardly ever sell, and whose financial interests are fully aligned with yours.

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! 

On Oct. 7, 2008, Fool co-founder David Gardner and his Motley Fool Pro team will invest $1 million in a portfolio designed to help you make money in any market. In the coming weeks, the team, relying heavily on proprietary CAPS "community intelligence" data, will establish long and short positions in a broad range of securities, including common stocks, publicly traded put and call options, and exchange-traded funds. To learn more about Motley Fool Pro and to receive a private invitation to join, simply enter your email address in the box below.