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 stocks with a top rating of five stars:

There's a simple reason why I selected the largest five-star gainers, as opposed to other big-name winners making noise on Thursday, such as Oracle (NASDAQ:ORCL). Stocks go up all the time, but unless you were able to predict the pop, what does it matter?  

Our community of more than 78,000 CAPS Fools considers five-star stocks the most likely to outperform the market. And so far, CAPS has proven its market-beating prowess: Over the last year, top-rated stocks have returned roughly 28%.

Written in the (five) stars?
For example, a whopping 96% of the 98 CAPS players who've rated Lindsay are bullish. On the strength of that growing support, the Nebraska-based provider of irrigation systems and infrastructure products has enjoyed a steadily rising CAPS rating over the last several months.

This bull pitch -- by CAPS All-Star mindmuse, just last week -- sheds some light on our community's thinking:

Agriculture infrastructure play that also addresses water use efficiency. They have been primarily US market (70%) but are expanding international irrigation ~50% YOY, so a play on global build out as well. Pricey, but situated in a sweet spot so let's pay up.

Lindsay is up 22% since that call, and it's returned a massive 95% over the last year. In fact, yesterday's pop came after the company more than doubled its first-quarter profit, thanks partly to a 79% surge in international irrigation sales. That's eerily in line with mindmuse's musings.

The bullish takeaway? Sometimes, it pays to pay up. Ideally, we'd always like to have quality on the cheap, but if you feel a company's competitive position and industry tailwinds are that attractive, it might make sense not to quibble too much over the price. In fact, the greatest growth stocks almost always look expensive. Don't just assume that a high P/E equates to a bad investment.

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 yesterday's drop in four-star stock Buffalo Wild Wings may have caught our community off-guard, one-star stocks are fully expected to fall hard. Over the last year, CAPS' lowest-rated stocks dropped an average of 16.6%.

Did CAPS call the fall?
Take, for instance, this Genitope bear call -- by CAPS player zzlangerhans -- in early September:

I can't claim to understand the details of the debate about the ongoing MyVax phase III trial. However, between the controversy about weak phase III interim data and the fundamental low likelihood of defeating a nasty player like lymphoma, I'm putting my chips on failure. I've seen too many biotech company CEO's shocked and dismayed by negative phase III results no matter how optimistic they were prior to data release.

The California-based biotech company is down 29% since that pitch, and it's fallen 41% in the last month alone. In fact, yesterday's drop came in anticipation of the company's remarks on MyVax -- its vaccine to treat a common type of lymphoma. It failed to meet the primary endpoint of its phase III trial: preventing the cancer's progression.

The bearish lesson? Always maintain a healthy dose of skepticism. Far too often, individual investors place too much weight on management's optimism, regardless of how much their own experience (or "gut" if you like) is telling them otherwise. By trusting your own eyes and staying within your circle of competence, you should find it much easier to put management's exuberance in the proper perspective.

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!