Friday's Biggest Stock Stars

Hey there, Fools. I've summoned our Motley Fool CAPS community once again to highlight Friday'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 Friday -- like Priceline (NASDAQ:PCLN) and Rio Tinto -- 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?
Longtime Fool favorite Middleby, for example, has maintained a five-star rating for the past four months straight. The Illinois-based company is a multiple selection of our Motley Fool Hidden Gems small-cap service -- up as much as a massive 633% -- so that overwhelming support shouldn't come as a big surprise. 

This outperform excerpt by CAPS player uwTony advised our community to pounce on some short-term price weakness back in September of 2006:

I don't have much to add that hasn't already been said about the quality of the company: strong management, solid balance sheet, growing revenues ...

It seems to me that the stock is getting punished for concerns that [fewer] people will be eating out if the economy slows. I don't buy this at all; it is just becoming too ingrained in the American culture to run out for a quick meal rather than cook.

Middleby is up 76% since that call. In fact, Friday's huge run-up came after the company reported smokin' third-quarter results way above Wall Street's expectations.

The bullish takeaway? Whenever the shares of a great company take a tumble, always try to ascertain why. If the reasons for the drop, in your own opinion, are completely unreasonable, then it might be a good opportunity to buy quality on the cheap.

As Warren Buffett says, "Great investment opportunities come around when excellent companies are surrounded by unusual circumstances that cause the stock to be misappraised."

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

Here are Friday's biggest one-star decliners:   

One-star stocks inspire the least confidence from our CAPS players. So while Friday's drop in The Knot (NASDAQ:KNOT) and Clearwire 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 Pacific Ethanol underperform pitch:

Ethanol is not the place to be. High corn prices hurt margins and make food more expensive. What would you rather do: Eat or use E85 fuel. I think the answer is eat. Corn prices will continue to rise as there is not enough to meet the food or ethanol demand.

Since CAPS All-Star Radioman101 penned that call last February, the Sacramento-based ethanol producer is down 60%. In fact, Friday's fall came after the company posted a third-quarter loss on weak ethanol pricing, while the U.S. government also issued a report signaling rising corn prices. Just like Radioman101 had warned.

The bearish lesson? Be wary of the "next big thing." Exciting emerging technologies such as alternative energy may very well revolutionize the world, but that doesn't necessarily mean shareholders will be rewarded. Always play the odds and invest in concerns that are economically feasible today.

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!