Wednesday's Biggest Stock Stars

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

Without further ado:

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

Our community of more than 83,000 CAPS Fools considers its five-star stocks the most likely to outperform the market. And so far, CAPS has indeed proven its market-beating prowess: Over the last year, top-rated stocks have returned roughly 28%.

Written in the (five) stars?
For example, out of the 1,930 CAPS players who've rated four-time Motley Fool Stock Advisor pick Quality Systems, 97% are bullish. Fueled by that massive Foolish support, the medical records software provider has maintained a perfect five-star rating for more than six months straight.

This bull pitch by CAPS player gilsmokey980 last November helped bring Quality's sliding stock to our community's attention:

The basic need for medical records being digitized makes this company worth looking at alone. If you look further into QSII's current market penetration and the future market potential you should start to get excited... QSII has a market cap under $1 billion currently yielding a 3% dividend. ROE is a 34% with a P/E at 24-25... I have no clue what a floor on this stock would be but I am willing to go for the ride in theory and in reality.

Quality Systems is up 19% since that call. Of course, a big chunk of those gains came after management reported third-quarter profit growth of 29% late on Tuesday, surpassing Wall Street's expectations in the process.

The bullish takeaway? It's virtually impossible to call a stock's bottom. If you've identified a high-quality stock at a good price, one of the biggest mistakes you can make is not buying a meaningful amount because you're worried the price will keep falling. Stocks can always drop further, but as we Fools like to say, it's not about timing the market, it's all about your time in the market.  

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

Here are Wednesday's biggest one-star decliners:  

One-star stocks inspire the least confidence from our CAPS players. So while yesterday's drop in highly rated LoopNet (Nasdaq: LOOP) 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?
In early November, for instance, CAPS player dakiar penned this small bit of Travelzoo underperform logic: "Until their expansion into other countries starts to pay off, I don't see this one rising. I do love their service though ... "

Shares of the online travel information provider are down more than 40% since that call. In fact, the majority of that plunge came after management posted disappointing fourth-quarter numbers yesterday, as results were affected by rising expenses, as well as losses, in its European and Asian operations -- consistent with dakiar's bearish concerns.

The bearish lesson? Always identify a company's problem areas before they come back to hurt you. Companies always have specific areas -- be it geographic or product segment -- that aren't performing as well as they'd like, but it's crucial to determine just how big of an impact they can really have. As CAPS' dakiar surmised, Travelzoo's troubles abroad proved to be one of the drags on the quarter.   

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. Above all else, 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!