Wednesday's Biggest Stock Stars

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

Without further ado:

Company	Yesterday's % Gain
Nordic American Tanker (NYSE: NAT)	5.39%
Hologic (Nasdaq: HOLX)	3.67%
Rex Energy	3.15%
Winthrop Realty Trust	2.36%
Philippine Long Distance	1.43%

There's a reason why I selected notable five-star gainers, as opposed to other big-name winners making noise on Wednesday, like one-star stock General Motors (NYSE: GM). Stocks go up all the time, but unless you were able to predict the pop, what does it matter?  

Our community of more than 120,000 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: In the first 20 months since its inception in late 2006, five-star stocks beat the market by 12 points, annualized.

Written in the (five) stars?
For example, 98% of the 109 All-Star members who've rated Hologic have a bullish opinion of the stock. In July, one of those Fools, TMFSarahGen, explained why the maker of diagnostic technology was a particularly healthy pick:

Excellent company that specializes in women's healthcare. Overly punished for a tough integration with the massive acquisition of [Cytyc]. Both Hologic and [Cytyc] have had cutting edge solutions that improve women's healthcare. Even bigger winner now they are together and as soon as they get over integration indigestion.

Consistent with that pitch, shares of Hologic bucked yesterday's market downtrend as its fourth-quarter revenue more than doubled, driven by offerings gained from the Cytyc merger -- just as TMFSarahGen had called.

The bullish lesson?
Sometimes, one plus one really does make three. Some of the better reasons for a merger include the use of complementary resources, increased operating efficiencies, and, as CAPS' TMFSarahGen touched on, gained economies of scale. So, if you ever come across a proposed deal that has prospects for one (or all) of the above, it might be a good idea to jump in -- especially if Wall Street hasn't realized it yet.

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

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

Company	Yesterday's % Loss
US Airways (NYSE: LCC)	30.36%
UAL (Nasdaq: UAUA)	27.28%
Borders Group	20.00%
XL Capital (NYSE: XL)	18.96%
Standard Pacific	18.27%

While yesterday's plunge in five-star stock ReneSola (NYSE: SOL) may have caught our community off-guard, one-star stocks are fully expected to fall hard: Over the 20 months since CAPS started, one-star stocks dropped an average of 11.4%, annualized.

Did CAPS call the fall?
Just last week, for instance, CAPS All-Star darksabre shared this bearish prediction on UAL:

Slowdown in travel will not offset the drop in oil prices. Airlines will cut fares and will cut extra costs in order to compete for business... some airlines will have to go under - airline industry needs more consolidation.

Consistent with that call, shares of UAL (along with other one-star airliners) sank yesterday on growing concerns about slowing travel demand -- just as CAPS' darksabre had warned.

The bearish takeaway?
Pay attention to risk and effect in its totality. One of the biggest mistakes we make as investors is failing to consider second-, third-, and higher-order effects when analyzing a company's risk exposures. As Charlie Munger once wrote, "This defect is quite understandable, because the consequences have consequences, and the consequences of the consequences have consequences, and so on."

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!