Thursday's Biggest Stock Stars

Hey there, Fools. I've summoned our Motley Fool CAPS community once again to highlight Thursday'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 -- such as solar stocks LDK Solar (NYSE:LDK) and Canadian Solar -- is simple: Stocks go up all the time, but unless you were able to predict the pop, what does it matter? 

Our CAPS community of more than 74,000 Fools considers its five-star stocks the most likely to outperform the market.

Written in the (five) stars?
For example, Helmerich & Payne, an Oklahoma-based contract drilling company, has had a whopping 438 CAPS players call "outperform" on its stock, while only 44 have been bears. On the strength of that Foolish support, Helmerich recently regained its perfect five-star rating.

This bull pitch -- by CAPS All-Star tedamerica -- urged our community to take advantage of Helmerich's depressed stock back in October 2006:

Helmerich and Payne is very underpriced. We see the price dropping on concerns that the price will drop so low that oil exploration and drilling will drop dramatically. This is not the case.

Helmerich's shares were in a complete free fall when that pitch was written -- down 44% from its previous 52-week high. Yet the stock has managed to rebound 50% since. In fact, yesterday's nice little pop came after the company reported fourth-quarter earnings and revenues above Wall Street's estimates.

The bullish takeaway? Just because a stock has gone down doesn't mean it's guaranteed to go back up. But if the reasons for a stock's downward spiral aren't exactly substantial, then you might have an authentic turnaround opportunity on your hands. Attempting to catch a falling knife can be a dangerous game, but if done properly, it can turn out to be a profitable one.

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

Here are Thursday's biggest one-star decliners:  

One-star stocks inspire the least confidence from our CAPS players. So while Thursday's drop in the two-star Research In Motion (NASDAQ:RIMM) may have caught some Fools off guard, our community fully expects one-star stocks to fall -- and fall hard.

Did CAPS call the fall?
Take, for instance, this China Shenghuo bear pitch by CAPS All-Star dinasourneil just last month:

This is probably one of the most egregious examples of the mini bubble we've currently got going on in some speculative Chinese ADRs. The worst example is China Architectural Engineering, which I honestly can't wait until it shows up on CAPS so I can red thumb it. [That company went public] at [$3.50] on Friday 9/28/07, by 10/4/07 the stock closed at $20.51 for a total market value of about $1 billion. ... Oddly enough [China Architectural] and [China Shenghuo Pharmaceutical] have the same underwriter, Westpark Financial ... I haven't heard of 'em either. As for [Shenghuo], their [P/E] is "only" [71].

The Kunming, China-based provider of pharmaceutical, nutritional, and cosmetic products is down 50% since that call. In fact, yesterday's massive drop came after the company said that third-quarter sales fell because of the adoption of stricter credit policies, persuading management to lower its revenue guidance for the year.

The bearish lesson? Get out of China while you can! Of course, you can always find odd pockets of value if you look hard enough, but in general, buying into an overbought, overheated, and speculative market like China can only lead to heartache. And if you happen to own some of the Chinese bubble's P/E-100 poster children, you've got to be prepared for the worst of it.

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!