Monday's Biggest Stock Stars

Hey there, Fools. I've summoned our Motley Fool CAPS community once again to highlight Monday'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 Monday, like Research In Motion (Nasdaq: RIMM). 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, all 58 CAPS All-Stars who've rated Carlisle Companies so far are bullish. Fueled by that overwhelming Foolish support, the manufacturer of construction materials has maintained a perfect five-star rating for more than six months straight.

This outperform pitch, by CAPS All-Star Stockefeller less than a month ago, commented on the stock's recent slide and the bargain opportunity it presented:  

Carlisle is oversold and is currently trading at one-third the value of its competitors on a price-to-earnings basis. Rock-solid choice on a technical and fundamental basis.

Carlisle is up 18% since that call. Of course, most of that gain came yesterday after management reported better-than-expected fourth-quarter results, as strong insulation and roofing systems sales sparked growth for the period.

The bullish takeaway? Know your relatives ... relative valuation, that is. There are a few different methods for valuing a stock, but comparing a company's P/E to that of its peers is one of the easiest ways to sniff out a bargain. As long as you're cognizant of its many limitations, relative valuation should be at least a part of your stock-appraisal process. 

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

Here are Monday's biggest one-star decliners:   

One-star stocks inspire the least confidence from our CAPS players. So while yesterday's plunge in AIG (NYSE: AIG) may have caught some Fools 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?
Late last August, for instance, CAPS All-Star nickinglis let the numbers on Nelnet do all his bearish talking:

Debt/Equity Ratio 45.47. Net Profit Margin 0.19%. Earnings/Share 0.03. Return on Equity 0.47%. This company is junk. Explain why it isn't.

Shares of the private student lender are down 43% since that call and have plunged a depressing 57% over the last year.

The bearish lesson? Warren Buffett once said, "Time is the enemy of the poor business and the friend of the great business." Over the long run, excess investment gains are the result of owning great companies that consistently earn excess returns on equity. As CAPS' nickinglis predicted, it was just a matter of time before Nelnet's share price accurately reflected its poor-return business.

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!