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
Focus Media Holding (Nasdaq: FMCN  )	20.90%
CapitalSource (NYSE: CSE  )	19.05%
Mueller Water Products	16.89%
Cemex (NYSE: CX  )	16.37%
SandRidge Energy (NYSE: SD  )	13.15%

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 Capital One (NYSE: COF  ) 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 130,000 CAPS Fools considers its five-star stocks the most likely to outperform the market.

Written in the (five) stars?
For example, 96% of the 240 All-Star members who've rated Focus Media have a bullish opinion of the stock. Two days ago, one of those Fools, fmahnke, explained why the advertising network operator offered an almost unbelievable free lunch:

Here is a stock with $4 in working capital (net of debt) which is entitled to receive about $4.54 in [SINA] common as a result of the disposition.

I bought it yesterday at $5.15 on what I think is a key reversal technical event. (otherwise known as capitulation). However. I will be watching this one closely because the charts of the two companies would suggest the deal may have fallen through, despite the lack of any announcement to that effect.

Naturally, after yesterday's nearly 21% surge, shares of Focus Media are beating the market handily since that call.

The bullish lesson?
Let the market be your servant; not your guide. One of the biggest mistakes investors make is confusing a stock's price action with the company's underlying situation, and failing to capitalize when there's a big spread between the two. As Benjamin Graham, the father of value investing, once wrote, "Look at fluctuations as your friend, rather than your enemy -- profit from folly rather than participate in it."

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
MGIC Investment	30.65%
Cedar Shopping Centers (NYSE: CDR  )	13.19%
Zion Oil & Gas	8.40%
Gibraltar Industries	7.59%
Telefonica of Argentina	5.60%

While yesterday's drop in five-star agriculture stocks Mosaic (NYSE: MOS  ) and Agrium may have caught our community off guard, one-star stocks are fully expected to fall hard.

Did CAPS call the fall?
Last week, for instance, CAPS All-Star ddberg predicted plenty more pain in Cedar Shopping's near-term future:

Going to be a tough 2009 for commercial real estate. The hurting has really only just begun in this area, and commercial REITs, especially those with heavy retail exposure, are going to suffer. Long-term I'm a buyer, but short-term I'm a seller.

After yesterday's drop, shares of Cedar are already down 19% since that call.

The bearish takeaway?
If you plan to play the turnaround game, it's often better to wait until the business shows evidence of turning around before you decide to jump in. Trying to catch a falling knife of an industry can work on occasion, but as CAPS' ddberg knows, you always run the risk of grabbing it at the sharpest place. Like Peter Lynch advised, it's better to "wait until the knife hits the ground and sticks, then vibrates for a while and settles down before you try to grab it."

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!