Tuesday'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 Tuesday's biggest winners among the stocks with a top rating of five stars.

Without further ado:

Company	Yesterday's % Gain
GigaMedia (Nasdaq: GIGM)	8.86%
Perficient	8.31%
Mindray Medical	7.60%
Infosys Technologies (Nasdaq: INFY)	5.87%
Foster Wheeler (Nasdaq: FWLT)	4.81%

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

Our community of more than 125,000 CAPS Fools considers its five-star stocks the most likely to outperform the market. And so far, CAPS has indeed proved its market-beating prowess: In the first 20 months since its inception in late 2006, five-star stocks beat the market by 12 points, annualized.

Written in the (five) stars?
For example, 98% of the 2,037 members who've rated GigaMedia have a bullish opinion of the stock. Just last week, one of those members, TMFBeachBum, explained why the online gaming company still has value written all over it:

Too much long-term momentum behind online gambling and the stock has been beaten down unreasonably. Would have liked to pick it late last year around 3 but this is still a great price for a great company with compelling products -- even in a down economy.

With the help of yesterday's pop, GigaMedia is beating the market by six points since that call.

The bullish lesson?
Never get anchored to a stock's previous price levels. As TMFBeachBum understands, if a company can continue to grow intrinsic value faster than its own stock price, there's no reason to think that you've "missed the bargain boat." After all, automatically selling (or even ignoring) recent gainers and holding on to losers is akin to, as Peter Lynch quips, "pulling out the flowers and watering the weeds."

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

Here are five of Tuesday's biggest one-star decliners:  

Company	Yesterday's % Loss
American Axle & Manufacturing (NYSE: AXL)	13.44%
Lexmark International (NYSE: LXK)	13.12%
Great Atlantic & Pacific Tea	12.01%
Renaissance Learning	10.53%
Blockbuster	7.48%

While yesterday's drop in five-star stock Precision Castparts (NYSE: PCP) may have caught our community off-guard, one-star stocks are fully expected to fall hard: Over the 20 months since CAPS started, one-star stocks dropped an average of 11.4%, annualized.

Did CAPS call the fall?
Last month, for instance, CAPS All-Star iamnik77 wrote a very bearish review on Lexmark's products:

What does Lexmark think, I won't notice that their printers are trash and I'll keep using them?

Note to printer makers: Make good printers. Create an ink system that is customer friendly. Consider putting a 200 page guarantee under normal usage on each of your ink cartridges. Watch all the market share go to you. I and many others would pay twice as much for a printer with a cost effective ink system. Customers know how to do the math. If you don't serve customers your company doesn't grow.

In line with that call, shares of Lexmark plunged yesterday after the printer maker lowered its guidance for the fourth quarter.

The bearish takeaway?
Trust your own eyes above all else. Just as it might pay to "buy what you know" (and enjoy), it's probably a good idea to stay away from stocks whose products you aren't particularly fond of. Due diligence is always required, but if you're not a satisfied customer, it might be a stretch to think you'll be a satisfied investor. 

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! 

Beginning Jan. 12, 2009, Fool co-founder David Gardner, Jeff Fischer, and their Motley Fool Pro team will accept new subscribers to their real-money portfolio service. Motley Fool Pro is investing $1 million of the Fool’s own money in long and short positions in a range of securities, including common stocks, put and call options, and exchange-traded funds (ETFs). They also incorporate proprietary CAPS "community intelligence" data into their research. To learn more about Motley Fool Pro and to receive a private invitation to join, simply enter your email address in the box below.