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 top ratings of four or five stars.
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Company
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Yesterday's Gain
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Lufkin Industries (Nasdaq: LUFK )
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12.29%
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Legg Mason (NYSE: LM )
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9.60%
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Manitowoc
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7.78%
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Vale (NYSE: VALE )
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6.76%
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SanDisk (Nasdaq: SNDK )
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6.14%
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There's a reason I selected those notable gainers, as opposed to other winners making noise on Wednesday, like low-rated financials Morgan Stanley (NYSE: MS ) 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 140,000 CAPS Fools considers its high-star stocks the most likely to outperform the market.
Written in the (five) stars?
For example, 99% of the 289 All-Star members who've rated Lufkin have a bullish opinion of the stock. In late May, one of those top Fools, wuff3t, explained why the oil pump maker looked too solid to dump: "Good ratios and financially sound with next to no debt; this should allow [Lufkin] to survive until the oil industry picks up (and we all know it will, one day). Could be a really good value play at this price."
Lufkin is already up 59% since that call. In fact, yesterday's double-digit pop came after the company's quarterly profit fell 80% and still managed to blow out expectations -- consistent with wuff3t's bargain-based reasoning.
The bullish lesson?
Always be on the hunt for stocks priced for imperfection. It's virtually impossible to call a stock's "bottom", but if you're confident that the risks are already baked into the price, there's a good chance your investment will turn out well over time. As Warren Buffett recommends, "Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good results."
And now for the losers ...
Of course, winning isn't everything in the stock market.
Here are five of Wednesday's biggest decliners with one- or two-star ratings:
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Company
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Yesterday's Loss
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MannKind
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7.15%
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Targacept (Nasdaq: TRGT )
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5.23%
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Qwest Communications
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3.15%
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Canadian Solar
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2.96%
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Tyson Foods
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2.44%
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While yesterday's drop in five-star favorite Chesapeake Energy (NYSE: CHK ) may have caught our community off guard, low-ranked stocks are fully expected to fall hard.
Did CAPS call the fall?
Just two days ago, for instance, CAPS member etamar2 targeted Targacept's surging price as cause for concern:
[T]his stock is imaginary, hype, inflated, unrealistic, but also very much loved. Why? dreams. Why not? Reality. Seriously, I believe that the company may prove good, but not THAT good to be worth this crazy valuation, even if it does develop a drug.
Following yesterday's market-bucking loss, CAPS member etamar2 is off to a nice start with that call.
The bearish takeaway?
Always invest with a healthy dose of skepticism. There are certainly stocks out there that have the "next big thing" in their pipeline, but unless you have exceptional insight in identifying them, there's really no need to take such long-shot bets. As Buffett reminds us, "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."
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!
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