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 four or five stars.

Without further ado:

Company	Yesterday's Gain
Amgen (Nasdaq: AMGN)	13.92%
China Fire & Security	6.31%
NRG Energy (NYSE: NRG)	5.75%
MEMC Electronic (NYSE: WFR)	4.93%
Peabody Energy	4.24%

There's a reason why I selected those notable gainers, as opposed to other winners making noise on Wednesday, like low-rated DryShips (Nasdaq: DRYS). 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, 96% of the 628 All-Stars who've rated Amgen have a bullish opinion of the stock. Last year, one of those Fools, PDTBiotech, was already helping our community peek into the pipeline:

Denosumab, a monoclonal antibody to RANK ligand designed to increase bone density, has shown excellent results in Phase III clinical trials. Given the large potential patient pools in indications Denosumab is likely to be approved for (postmenopausal women, women treated with hormone therapy for breast cancer, etc.) this drug is likely to generate a lot of revenue.

Shares of Amgen are beating the market by 59 points since that call. In fact, yesterday's pop came after a phase 3 head-to-head trial showed that denosumab was indeed more effective than Novartis' Zometa at reducing bone complications in breast cancer patients -- consistent with PDTBiotech's pitch.

The bullish lesson?
Learn to pounce on potent large-caps being priced like sleeping giants. By carefully breaking down the risks and rewards of a company's pipeline, as CAPS' PDTBiotech demonstrates, you'll be well ahead of most investors in estimating what the stock is worth. Wall Street often fails to discount the massive potential within a company's portfolio, which can add some attractive "optionality" to the valuation.

And now for the losers ...
Of course, winning isn't everything in the stock market. Here are five of Wednesday's biggest decliners with a one- or two-star rating:  

Company	Yesterday's Loss
Allied Capital (NYSE: ALD)	10.72%
Fortress Investment Group	9.93%
Crocs	9.73%
China Sunergy	8.92%
MGM Mirage (NYSE: MGM)	6.28%

While yesterday's drop in highly rated ReneSola (NYSE: SOL) may have caught our community off guard, low-ranked stocks are fully expected to fall hard.

Did CAPS call the fall?
Last year, for instance, CAPS All-Star CubsBearsBulls43 was already warning Fools of Allied Capital's Ponzi-ish behavior:

Very questionable credit rating and valuation methods could lead this company to blow up during any downturn. ... The dividend is a mirage which can be maintained only by continually issuing new stock i.e. new stockholders paying off old stockholders. Eventually, this company has to be valued much lower. The question is, how long will that take?

Not surprisingly, shares of the business development company are down a whopping 81% since that call.

The bearish takeaway?
Learn to dodge dangerous dividends. High-yield stocks can be alluring, but if that company lacks the organic cash flow to pay its dividend, you won't see much of a total return on your investment. As CAPS' CubsBearsBulls43 understands, a juicy-looking payout is only as attractive as the business behind 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 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!