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:
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Company
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Yesterday's % Gain
|
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GigaMedia (Nasdaq: GIGM )
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11.88%
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Northgate Minerals (AMEX: NXG )
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10.67%
|
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UnitedHealth Group (NYSE: UNH )
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8.90%
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Silver Wheaton
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7.43%
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Canadian Natural Resources (NYSE: CNQ )
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6.65%
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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 Las Vegas Sands (NYSE: LVS ) . 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, 96% of the 604 All-Star members who've rated Motley Fool Stock Advisor and Inside Value pick UnitedHealth have a bullish opinion of the stock. Last month, one of those Fools, viconquest, explained why the managed-care provider looked like a relatively healthy pick:
A well-run organization that is only getting better by internally incorporating more IT, business and forecasting solutions. I think they manage risk well and they are huge and well-positioned to capitalize on the rising cost of health care. Not a homerun stock overall as growth opportunities are limited, but I believe it will outperform the S&P over a long period of time.
UnitedHealth is beating the market since that call.
The bullish lesson?
Chasing obscure growth stocks isn't always required to build wealth. As long as management stays focused and continually strives to earn high returns on capital, boring, well-known, and well-positioned large-caps can power your returns for years. As Warren Buffett once said, "Sound investing can make you very wealthy if you're not in too big of a hurry. And it never makes you poor, which is even better."
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:
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Company
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Yesterday's % Loss
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Forest City Enterprises
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22.22%
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Apartment Investment & Management (NYSE: AIV )
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20.70%
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Equity Residential
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20.45%
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SL Green Realty
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20.20%
|
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Macerich
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18.27%
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While yesterday's drop in five-star stock CapitalSource (NYSE: CSE ) 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?
Last month, for instance, CAPS member secretbonus shared these bearish musings on Apartment Investment & Management. Here's an excerpt:
Residential real estate has mortgages resetting like crazy, and commercial real estate is going to have similar problems. Credit unwinding is going to make this stock hit the fan. ... Enterprise value is wrong, value measurables are way off.
Where is this company in 5 years? In major trouble.
Not surprisingly, shares of the apartment REIT are down 44% since that call.
The bearish takeaway?
Always identify a stock's risk exposures before they come back to haunt you. One of the most common mistakes we can make as investors is failing to see the nasty things that lurk just around the corner. Unless you're willing to consider all of the possible ways your stock might get killed -- both in the short and the long run -- there's a good chance you'll wake up one day and get blindsided.
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!
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