Thursday's Biggest Stock Stars

Hey there, Fools. I've summoned our Motley Fool CAPS community once again to highlight yesterday's biggest gainers among the stocks with a top rating of five stars.

Without further ado:

The reason I selected the largest five-star gainers, as opposed to other big-name winners making noise on Thursday -- like solar stocks First Solar (NASDAQ:FSLR) and Evergreen Solar -- is simple. Stocks go up all the time, but unless you were able to predict the pop, what does it matter?    

Our community of more than 73,000 Fools in CAPS considers its five-star stocks the most likely to outperform the market.

Written in the (five) stars?
Out of the 395 All-Stars who've rated the Brazilian oil and gas behemoth Petroleo Brasileiro, for example, a whopping 393 are bulls. Of course, the stock is a two-time recommendation of our Motley Fool Income Investor service -- up 68% and 119% on the first and second picks, respectively -- so our community may be a tad partial.

Still, this outperform pitch -- by CAPS player digdug62 on Aug. 9 -- explains why that support is also very much deserved:

Petrobras has very little real competition on its home turf (Brazil) which is one of the very few places left in the world where billion barrel scale fields are likely to be found in the near future. The only other two areas in the world with this kind of exploration potential are Libya and the circum-Caspian (both much more politically difficult).

Go ahead and read the rest of his pitch and see why he's confident about the company. The fact that Petrobras is up 81% since that call is a bonus for digdug62. Yesterday's pop came after the company said it discovered between 5 billion and 8 billion barrels of oil and gas reserves. You know, just like digdug62 had been anticipating.

The bullish takeaway? Always have a thorough understanding of what your company owns. By figuring out the potential risks and rewards of all the assets in the pipeline, you'll be ahead of most investors in knowing what the stock is worth. Sometimes, Wall Street fails to discount the massive potential hidden in a company's assets, which adds some attractive "optionality" to the valuation.   

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

Here are yesterday's biggest one-star decliners:   

One-star stocks inspire the least confidence from our CAPS players. So while Thursday's drop in Zumiez (NASDAQ:ZUMZ) and Hansen Natural may have caught some investors off-guard, our community fully expects one-star stocks to fall -- and fall hard.

Did CAPS call the fall?
Take, for instance, this WCI Communities underperform pitch by CAPS All-Star kristm last March:

Housing still has a long way to fall ... Builders keep building but nobody's buying. Especially not the luxury stuff being turned out by this [company]. Absolutely nothing justifies the P/E being over 100. [The company currently does not carry a P/E ratio. -- Eds.]

The Florida-based homebuilding and real estate services company is down a gut-wrenching 81% since that call. In fact, yesterday's huge loss came after the troubled company reported an increase in defaults for the third quarter, leading to a worse-than-expected loss of $69.7 million.   

The bearish lesson? Implicit in a stock's price are very specific growth, margin, capital spending, and risk assumptions. Therefore, it's your job as an investor to seriously question whether those assumptions are justified. One of the surest ways to lose money is by habitually buying stocks whose implied expectations are insanely lofty given the industry landscape.

The final Foolish move
Investors often focus strictly on stock price movements (or the results) 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!