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.

Without further ado:

Company

Yesterday's % Gain

Xinyuan Real Estate

15.48%

Mahanagar Telephone Nigam

10.36%

Corning (NYSE: GLW  )

6.22%

A-Power Energy (Nasdaq: APWR  )

5.65%

Immersion

3.17%

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 Nortel (NYSE: NT  ) . 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, 97% of the 437 CAPS All-Stars who've rated Corning have a bullish opinion of the stock.

Last month, CAPS member cdelaney08 explained why the specialty glass and ceramics giant was a tasty turnaround bet:

4.7 P/E ratio, beaten senseless, quality company. That's really cheap. Yes they warned of a slower Q3 but really is that so much of a surprise in the current environment? Large purchases like LCD TVs are being postponed until the economy starts turning. But I expect in 1 year as the economy starts making a recovery, this stock will make a very nice comeback from current level.

With the help of yesterday's pop, Corning is edging the market since that call.

The bullish lesson?
Now is definitely a fantastic time to be a value investor. The market can always get worse in the short run, but as long as you take a long-term perspective, buying superior businesses when there is blood in the streets is the very best way to build wealth. As Warren Buffett said in a recent interview, "five years from now, 10 years from now, we'll look back on this period and we'll see that you could have made some extraordinary buys."

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

XL Capital

53.80%

General Motors (NYSE: GM  )

31.11%

Ambac Financial

28.37%

Merrill Lynch (NYSE: MER  )

25.92%

Ford Motor (NYSE: F  )

21.80%

While yesterday's drop in five-star energy stocks Chesapeake (NYSE: CHK  ) and XTO 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?
A few days ago, for instance, CAPS member dibble905 shared a list of reasons to stay bearish on General Motors:

- Low Liquidity/High Debt
- Negative book value of equity, and increasing
- Capital Spending growth rate is negative when Toyota is increasing capital expenditures
- It is paying out dividends (?)
- Poor Brand Image
- Severe overlap in its product lines

I do not see this company surviving past the next 2-4 years regardless of the economic downturn or some form of revival -- it is struggling to produce a profit in either case.

Of course, consistent with that call, shares of GM plunged 31% to a 58-year low yesterday after Standard & Poor's warned it might cut the automaker's rating further into junk status, on fears over a collapse in global auto demand.

The bearish takeaway?
Now is not the time to bet on the long-shots. As CAPS' dibble905 understands, if a company perpetually burns cash -- meaning that its owners are essentially losing money, too -- it's only a matter of time before the stock starts to reflect those losses. With so many cash-rich, highly profitable, high-quality companies selling at bargain prices, you really don't have to bet on difficult turnarounds.

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!

In the coming weeks, 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. The service, which just launched, will rely heavily on proprietary CAPS "community intelligence" data to 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

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Immersion is a Motley Fool Rule Breakers recommendation. Chesapeake Energy is an Inside Value pick. The Fool's disclosure policy is always the big winner.


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