Thursday'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 Thursday's biggest winners among the stocks with top ratings of four or five stars.

Without further ado:

Company	Yesterday's % Gain
Wonder Auto Technology (Nasdaq: WATG)	16.30%
Coventry Health Care (NYSE: CVH)	9.19%
Humana (NYSE: HUM)	8.12%
ING Group	6.82%
Ctrip.com International	5.37%

There's a reason why I selected those notable gainers as opposed to other winners making noise on Thursday, like low-rated financials JPMorgan (NYSE: JPM) and Goldman Sachs. Stocks go up all the time, but unless you were able to predict the pop, what does it matter?  

Our community of more than 135,000 CAPS Fools considers its high-star stocks the most likely to outperform the market.

Written in the (five) stars?
For example, 95% of the 153 All-Star members who've rated Humana have a bullish opinion of the stock. Just last week, one of those Fools, mrindependent, highlighted the stock as a rather healthy bet:

I am generally avoiding health care insurers due to the uncertainty created by healthcare reform, but this stock is such a good value that I think it is worth buying. … Besides passing my screen, I feel good about this pick because its forward P/E is only 6. The company is selling for 1.1 times book value and 80% of the book value is cash and short term investments.

Consistent with that call, shares of several highly rated health insurers surged yesterday as the Obama administration's push for health-care reform continued to face setbacks in Washington.

The bullish lesson?
Learn to embrace uncertain situations. One of the biggest mistakes investors make is thinking they can sit back, wait on the sidelines, and just jump back into a stock when all of its uncertainties are resolved. But as Warren Buffett reminds us, "The future is never clear, and you pay a very high price in the stock market for a cheery consensus. Uncertainty is actually the friend of the buyer of long-term values."

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

Here are five of Thursday's biggest decliners with one- or two-star ratings:   

Company	Yesterday's % Loss
AMD (NYSE: AMD)	5.64%
Best Buy (NYSE: BBY)	5.02%
CIT Group	4.48%
J.C. Penney	4.29%
Gannett	4.16%

While yesterday's drop in highly-rated Northgate Minerals may have caught our community off-guard, low-ranked stocks are fully expected to fall hard.

Did CAPS call the fall?
Just three days ago, for instance, CAPS All-Star ikkyu2 urged our community to walk out of Best Buy:

Best Buy is not what killed Circuit City, and it's not going to benefit from seizing a growing price of a rapidly shrinking pie. If competing directly with [Wal-Mart (NYSE: WMT)] on price wasn't bad enough, they also have Amazon and other online retailers breathing down their neck. It won't be long before they're in the same bin as Circuit City.

After yesterday's drop, shares of the electronics retailer are already down 12% since that call.

The bearish takeaway?
Never underestimate the protection that a competitive edge provides. Without a meaningful moat, businesses are constantly exposed to the ravages of competition, especially low-cost alternatives. As Buffett reminds us, "The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage."

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!