Wednesday's Biggest Stock Stars

Hey there, Fools. I've summoned our Motley Fool CAPS community once again to highlight a few of Wednesday'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 Wednesday, like one-star stock Pacific Ethanol. 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, 96.9% of the 1,438 members who've rated Motley Fool Hidden Gems pick Mueller Water have a bullish opinion of the stock. Two months ago, one of those Fools, SIP09USU, explained why the water infrastructure specialist seemed too cheap to pass up. Here's an excerpt:

[L]ooking for the stimulus package to cause an uptick in stock price. A solid balance sheet (for the time being), insider trading and potential analyst coverage boosts offer the catalyst the stock may need to get moving. Add this in with the potential fact that the bottom of the construction spending slump has been put in.

Consistent with that call, shares of Mueller surged yesterday after the company posted a quarterly loss in line with analyst estimates and announced significant cost savings related to the closing of its iron pipe-manufacturing plant in Alabama.

The bullish lesson?
Learn to pounce on stocks priced for imperfection. It's virtually impossible to call a stock's "bottom," but if you're confident that most of the risks are already baked into the price, there's a good chance your investment will turn out well over time. In Warren Buffett's words, "Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good results."

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

Here are five of Wednesday's biggest decliners with one- or two-star ratings:

While yesterday's drop in highly rated Walgreen (NYSE:WAG) 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, my fellow Fool Rich Duprey (TMFCop) planted a seed of doubt over Origin Agritech's popping price:

China still has a large surplus of corn seed to work through and Origin says there will only be limited quantities of its GM seed available through next year. There may be a payoff down the road for [Origin] but its current valuation can't stand. I expect the stock to give back much of the gains it made yesterday over the course of the next year.

In line with that warning, shares of the Chinese producer of hybrid crop seeds sank yesterday after posting a quarterly loss of $1.98 million on revenues that decreased 31.5%.

The bearish takeaway?
Implicit in a stock's price are very specific growth and risk assumptions. Therefore, it's your job as an investor to assess whether those assumptions are reasonable, given the company's position going forward. As Buffett reminds us, "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!