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
Hercules Offshore (Nasdaq: HERO)	14.48%
Suncor Energy (NYSE: SU)	6.86%
Cemex	6.80%
Yamana Gold (NYSE: AUY)	4.65%
Freeport-McMoRan (NYSE: FCX)	4.58%

There's a reason I selected those notable gainers, as opposed to other winners making noise on Monday, such as low-rated Sprint Nextel (NYSE: S): 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, 97.2% of the 510 All-Star members who've rated Hercules Offshore have a bullish opinion of the stock. In late May, one of those Fools, JakilaTheHun, explained why the offshore driller seemed like a particularly slick move:

The logical conclusion is that demand for their services will increase as oil prices continue their inevitable march up towards $70 /gallon. At that point, offshore oil becomes more attractive and investors become more interested in companies like [Hercules]. ... Downside risk is $0 due to their moderately heavy debt load. Upside potential might be around $45.

Consistent with that call, shares of Hercules surged yesterday, after a Wall Street analyst upgraded the stock on rising demand from the Gulf of Mexico jackup-rig and inland-barge markets.

The bullish lesson?
The most important job you have as an investor is to quantify a stock's upside and downside. At the very least, you should always make sure you're being compensated appropriately for all the risks you're taking on. If an investment's potential payoff seems generous compared with the chance of loss -- as JakilaTheHun surmised with Hercules -- it's probably best to take Mr. Market up on his offer.

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
Sunrise Senior Living (NYSE: SRZ)	32.02%
Crocs	5.04%
Lexmark International	4.50%
Cedar Fair	3.21%
Pacific Sunwear of California	2.75%

While yesterday's plunge in highly rated Energy Conversion Devices (Nasdaq: ENER) may have caught our community off guard, low-ranked stocks are fully expected to fall hard.

Did CAPS call the fall?
Late last year, for instance, CAPS member Tammy819 pointed out the dark clouds over Sunrise Senior:

Although senior healthcare services may be on the rise, Sunrise's sales are not. ... Compared to its own industry, the results for this company have been a flop. Regardless of how "profitable" senior care may appear, this company needs help beyond any immediate remedies.

Consistent with that warning, shares of Sunrise plunged by more than 30% yesterday, after the senior-home operator posted a quarterly loss of $44.4 million and said it continues to weigh restructuring options with creditors.

The bearish takeaway?
If you plan to play the turnaround game, it's often better to wait until the business shows evidence of improving before you decide to jump in. Buying into unprofitable, distressed situations can work on occasion, but most of the time, the odds are stacked too heavily against you. As Warren Buffett simply put it, "Turnarounds seldom turn."

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!