Monday'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 Monday's biggest winners among the stocks with top ratings of four or five stars:

Company	Yesterday's Gain
Manitowoc (NYSE: MTW)	8.26%
Agrium	7.65%
PotashCorp	6.48%
Caterpillar (NYSE: CAT)	6.01%
Freeport-McMoRan (NYSE: FCX)	4.32%

There's a reason I selected those notable gainers, as opposed to other winners making noise on Monday, like low-rated biotech Geron (Nasdaq: GERN): 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, 99.3% of the 756 All-Star members who've rated Manitowoc have a bullish opinion of the stock. In May, one of those top Fools, Drew2142, urged our community not to cry over the spilled stock:

I would think the proper thing to do, is smile ear-to-ear, and buy large quantities at an obscene price. This is a great company, that sold a great part of their business to pick up an even larger cash cow. when the dust settles, these guys will have solid returns, and a higher stock price.

Consistent with that call, shares of the heavy-equipment maker are up 78% since that call.

The bullish lesson?
Learn to embrace the bargains that only bad news can provide. As CAPS' Drew2142 understands, industry champions often move higher well before the economy or sentiment turns, so it's important to jump in while there's still blood in the streets. In Warren Buffett's words, "If you wait for the robins, spring will be over."

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

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

Company	Yesterday's Loss
Hovnanian Enterprises (NYSE: HOV)	4.83%
M/I Homes	4.48%
AIG (NYSE: AIG)	4.70%
Novavax	3.10%
Palm	2.49%

While yesterday's drop in five-star stock Hasbro (NYSE: HAS) may have caught our community off guard, low-ranked stocks are fully expected to fall hard.

Did CAPS call the fall?
Two weeks ago, for instance, CAPS member DarthMaul09 seemed skeptical of Hovnanian's recent price action: "Not convinced that a true housing recovery can develop with increasing unemployment, which suggests that a significant price rise on most of the housing related stocks is premature at best."

In line with that warning, shares of several low-rated housing stocks slipped yesterday after the housing market index, which tracks industry confidence, fell for the first time since June.

The bearish takeaway?
Never confuse an improving price for improving prospects. As long as a company's fundamental picture remains bleak, short-term, emotionally charged run-ups can last for only so long. As Buffett reminds us, "For some reason, people take their cues from price action rather than from values. ... The dumbest reason in the world to buy a stock is because it's going up."

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!