Wednesday's Hottest Stocks

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 low-rated AIG (NYSE: AIG). Stocks go up all the time, but unless you were able to predict the pop, what does it matter?

Our community of more than 160,000 CAPS Fools considers its high-star stocks the most likely to outperform the market.

Written in the (five) stars?
For example, 97% of the 688 members who've rated Kinetic Concepts have a bullish opinion of the stock. Last summer, one of those Fools, scoot2much45, brought the stock's uncanny healing powers to our community's attention:

Excellent at what they do which is negative pressure wound therapy [NPWT] that is the most advanced way to heal a wound. ... Competitors in this field do not have the same type of material as [Kinetic Concepts'] and [Kinetic Concepts] really keeps their name and products in the forefront of hospitals.

Shares of the medical device maker are up an impressive 80% since that call. In fact, yesterday's double-digit pop came after a San Antonio jury ruled that a NPWT marketed by rival Smith & Nephew infringed on two patents licensed to Kinetic Concepts.

The bullish lesson?
Always be on the hunt for massive economic moats. A sustainable advantage is one of the key indicators of long-term success, so if you've identified one of the more powerful ones at work -- economies of scale, network effects, high switching costs, or in Kinetic Concepts' case, invaluable intellectual property -- you might be on to something special. As Warren Buffett reminds us, "The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage."

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 five-star stock Orthovita may have caught our community off guard, low-ranked stocks are fully expected to fall hard.

Did CAPS call the fall?
Earlier this year, for instance, All-Star zzlangerhans shared a few bearish facts about GenVec:

The problem with the recent price rise is that there really hasn't been any good news about TNFerade, or any particular reason to think that the next interim analysis will be any better than the first. A recent orphan drug designation may have attracted attention back to the stock, but was there any doubt they would receive it? The orphan drug status does not represent any form of endorsement of a drug's efficacy by the FDA. The data I've seen so far argues strongly against TNFerade being a game changer in the battle against a monster like pancreatic cancer.

Our member might have been a bit early on that call, but yesterday's loss has helped his score recover on the underperform call.

The bearish takeaway?
With biotechs, it's about the pipeline. An understanding of what is in the works and the chances of success are critical to your success when investing in this intriguing, yet risky, area. As CAPS' zzlangerhans understands, a shaky pipeline is not the best of things to have, especially for solving tricky biological problems.

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!