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 -- such as Level 3 Communications (NASDAQ:LVLT) and Salesforce.com -- 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 74,000 CAPS Fools considers its five-star stocks the most likely to outperform the market.  

Written in the (five) stars?
For example, Zix, a provider of email encryption and e-prescribing services, has long been a low-priced favorite of our community. So far, a whopping 407 players have rated the Dallas-based small cap, with 397 of them having a bullish opinion.  

This outperform pitch -- by CAPS player joethebot back in February -- highlighted a major step for Zix:

With their recent FDIC (Federal Deposit Insurance Corporation) deal, this company is positioned to move up in value. In my opinion this new visibility is exactly what was needed to bolster serious attention to credibility and market share. This one is going to grow not run up and fizzle.

Zix has returned an awesome 101% since that call, and is up 155% over the last year. In fact, the shares have been on fire since mid-September, when the company announced yet another major milestone: 14 million prescription transactions processed.   

The bullish takeaway? With underfollowed stocks, just a little exposure can go a long way. So try to dig for hidden small caps that are doing big things underneath Wall Street's radar -- like expanding sales channels and steadily signing key clients. Once those deals translate into "visible" earnings growth, the company's following (and stock price) will probably get a nice boost, too.   

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 massive drop in five-star stock The9 Limited (NASDAQ:NCTY) may have caught Fools off guard, our community fully expects one-star stocks to fall -- and fall hard.

Did CAPS call the fall?
Take, for instance, this Virgin Mobile bear pitch by CAPS All-Star Schwab85 last month -- just two days after the stock's IPO:

I hate to be pessimistic and I don't know too much about them accept that they don't have annual contracts which they displayed at their IPO. Otherwise I doubt they have anything on AT&T or Verizon. Since AT&T acquired Cingular and now offer rollover minutes they are not only a giant but have a fair plan. ... I'm not so sure VM can handle this competition.

The New Jersey-based wireless service provider is down 39% since that call. In fact, Friday's sell-off came after the company reported a wider year-over-year third-quarter loss of $7.3 million.    

The bearish lesson? Always seek a competitive advantage. As Warren Buffett says, "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."

So, if you have an inkling of doubt about how a business will be able to compete, that might be more than enough reason to stay away from the stock.   

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, tens of 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!