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:

There's a reason I selected those notable gainers as opposed to other winners making noise on Monday, like low-rated MGM Mirage (NYSE:MGM). 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, 95.2% of the 165 All-Star members who've rated McMoRan Exploration have a bullish opinion of the stock. Last summer, one of those top Fools, kenqc, explained why the oil and gas explorer was worth looking into:

highly levered oil play. assuming that they do not run out of money, any rise in oil prices and inflation should play well for this company. ... looking for the highly levered companies to offer the most speculative opportunities. has a partnership in an oil project with [Energy XXI].

Consistent with that call, shares of both McMoRan and Energy XXI skyrocketed yesterday after the joint venture partners announced a major oil find at their Davy Jones prospect in the Gulf of Mexico.

The bullish lesson?
There's really no substitute for knowing a company cold. By carefully breaking down the risks and rewards of a given business model, you'll be well ahead of most investors in estimating what the stock is worth. As CAPS member kenqc understands, Wall Street often fails to discount the massive potential within a company's portfolio, which can add some attractive "optionality" to the valuation.

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:   

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

Did CAPS call the fall?
Just last month, for instance, CAPS member expert6 wrote that Medifast could certainly stand to shed some extra pounds:

[Medifast] is up about 9 times over its recent low. P/E of 47 (to the moon already). Predominantly only substantial insider selling this year. Cash and real assets not much over $1 per share. Expense rate has almost kept up with growth rate. ... [T]he 2010 rate projected by the euphoric analysts is less that a third of the 2009 rate. ... I think fair value may be in low teens at best.

After yesterday's double-digit drop in the weight loss company, expert6 is off to a strong start with that bearish call.

The bearish takeaway?
Never mistake an attractive business for an attractive stock. As CAPS member expert6 understands, even the fastest growing companies can disappoint Mr. Market if its valuation already reflects much of that success. 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 retire wealthy.

Log in to CAPS today and start participating. It's absolutely free -- and a lot of fun!