Monday's Biggest Stock Stars

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

XTO Energy (NYSE: XTO  )

15.35%

Clean Energy Fuels

8.98%

Titanium Metals

6.24%

Chesapeake Energy (NYSE: CHK  )

5.82%

Philip Morris International (NYSE: PM  )

3.67%

There's a reason I selected those notable gainers, as opposed to other winners making noise on Monday, like low-rated Sun Microsystems (Nasdaq: JAVA  ) . Stocks go up all the time, but unless you were able to predict the pop, what does it matter?  

Our community of more than 145,000 CAPS Fools considers its high-star stocks the most likely to outperform the market.

Written in the (five) stars?
For example, 98.4% of the 2,381 members who've rated XTO have a bullish opinion of the stock. Early this year, one of those Fools, wolfhounds, explained why the natural gas producer's price weakness presented a prime opportunity to pounce:

I'm a buyer of this stock today after reading the 10-K and disregarding the market's knee jerk reaction. In case you can't get to it, the gist is this. Despite dramatic falls in energy prices, XTO had substantial increase in cash flow and production while adding valuable reserves which will bode well into the future.

Consistent with that call, shares of XTO surged yesterday after oil behemoth ExxonMobil (NYSE: XOM  ) agreed to acquire the company for $41 billion, including taking on XTO's $10 billion in debt, in a huge move to capitalize on rapidly increasing domestic natural gas reserves.

The bullish lesson?
Learn to think like a business owner, not a stock trader. All sorts of noise can depress a stock's price in the short-term, but true investors focus on the factors that really count over time. As CAPS' wolfhounds understands, by gobbling up attractive assets at severely depressed prices, you give yourself plenty of "upside" opportunities -- including getting bought by one of the big boys -- to earn an outsized return.

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

MBIA (NYSE: MBI  )

7.63%

Citigroup (NYSE: C  )

6.33%

Brookfield Homes

4.00%

Motorola

2.92%

Meritage Homes

2.24%

While yesterday's drop in highly rated Dynegy may have caught our community off guard, low-ranked stocks are fully expected to fall hard.

Did CAPS call the fall?
Last year, for instance, CAPS All-Star TMFBuck showed skepticism over MBIA's upturning stock price:

Despite its recent recovery, I still think this stock has a good chance of going to zero. They have massively [diluted] shareholders and took on a big deal at a price that [Berkshire Hathaway] wouldn't touch. I'm not exactly sure that I would start the ticker tape parade.

Not surprisingly, shares of embattled mortgage insurer have fallen over 66% since that call. In fact, yesterday's market-bucking plunge came after Standard & Poor's announced plans to remove MBIA from the S&P 500 index.

The bearish takeaway?
Never confuse an improving price for improving prospects. As long as a company's fundamental picture remains bleak, short-term, speculation-driven run-ups can only last for so long. As Warren Buffett observes, "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!

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Titanium Metals, Meritage Homes, and Berkshire are Motley Fool Stock Advisor picks. Berkshire is also an Inside Value choice, as is Chesapeake. Philip Morris is a selection of Global Gains. The Fool owns shares of XTO, Chesapeake, and Berkshire. The Fool's disclosure policy is always the big winner.


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