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
ION Geophysical (NYSE: IO)	25.42%
SanDisk	8.54%
Under Armour (NYSE: UA)	5.01%
Tata Motors (NYSE: TTM)	4.45%
American Capital	3.61%

There's a reason I selected those notable gainers as opposed to other winners making noise on Monday, like low-rated Allied Capital: 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, 97.5% of the 728 members who've rated ION have a bullish opinion of the stock. Just last Friday, one of those Fools, mypieceofpie, explained why the seismic data specialist looked too tempting to pass up:

As the limited natural resource of oil becomes harder to pull, locating substantial reserves is most important. ION Geophysical is on the leading edge of this technology. ... While reading the most recent conference call, I like some of management's decisions concerning debt repayment and R&D.

Consistent with that call, shares of ION surged 25% yesterday after announcing a joint venture with China's BGP that will dramatically improve its financial position.

The bullish lesson?
Pay attention to small caps that make a habit of landing big deals. Just a couple of major contract wins can have a huge impact on a small business, so focus on the market leaders with massive industry trends working in their favor. If those tailwinds are strong enough, blockbuster deals will probably keep blowing in that company's direction.

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
InterOil (NYSE: IOC)	11.82%
Fifth Third Bancorp	7.93%
TiVo	7.55%
AIG (NYSE: AIG)	7.10%
Citigroup (NYSE: C)	4.26%

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

Did CAPS call the fall?
Only two weeks ago, for instance, CAPS All-Star UltraLong showed skepticism over InterOil's recent price run:

Interoil recently made a fairly large gas discovery and for that I applaud them. Now as for the 240 times forward price to earnings ratio, I loathe them. ... I can count 4 times in the past 3 years that we've seen [InterOil] rally on the order of 50% in roughly 6 weeks and in all 4 times it's been hammered shortly thereafter.

Following yesterday's double-digit drop, UltraLong is off to a strong start with that underperform call.

The bearish takeaway?
Never mistake a wonderful business for a wonderful stock. As CAPS' UltraLong understands, even the greatest of companies can disappoint Mr. Market if its valuation already reflects much of that greatness. As Warren Buffett says, "Investors making purchases in an overheated [stock] need to recognize that it may often take an extended period for the value of even an outstanding company to catch up with the price they paid."

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!