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 one-star financial H&R Block (NYSE: HRB). Stocks go up all the time, but unless you were able to predict the pop, what does it matter? 

Our community of more than 86,000 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 its first year, top-rated stocks returned roughly 28%.

Written in the (five) stars?
For example, all 15 CAPS All-Stars who've so far rated BladeLogic have a bullish opinion. On the strength of that top-notch support, the provider of data center automation software recently regained a five-star rating.  

Late last January, CAPS player falcoIII provided Fools with this rather prescient price target:

Target Price by 1/1/09: $33 ($900M market cap)
- Opsware acquisition was at 16x revenue valuation. BLOG at 15x rev (as of 9/30/07) is $900M valuation.

- Significant revenue growth: 30% +

- Flat EPS: any profit goes into R&D and sales.
- Debt free: immune from credit crunch.

Faster than even CAPS' falcoIII had forecasted, shares of BladeLogic soared yesterday after BMC Software (NYSE: BMC) agreed to acquire it for roughly $800 million, or $28 per share -- eerily close to his own valuation of the company.

The bullish takeaway?
Always gather details on done deals. By keeping in tune to the acquisition activity in a specific sector, you'll gain a better idea of what the smaller players might be worth to potential suitors. Though it's never wise to purely speculate on a buyout, investing in a fundamentally strong, bargain-priced small cap with a good chance of being acquired might be a smart way to gain an edge.

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 although yesterday's drop in highly rated First Marblehead (NYSE: FMD) may have caught our community off-guard, one-star stocks are fully expected to fall hard. In the first year, CAPS' lowest-rated stocks dropped an average of 16.6%.

Did CAPS call the fall?
Just last Friday, for instance, CAPS player Allstar13913 offered some thoughts on all the Bear Stearns bailout news:

With dwindling prospects, and a government bailout in the works, I don't believe this stock can really go anywhere but down. Bear Stearns is currently searching for a buyer, and plans on raising money by selling shares of itself to JPMorgan (NYSE: JPM) ... This will be the 1st large bank collapse of the subprime mess.

Of course, shares of the troubled investment bank went on to plunge 84% yesterday after it agreed to be bought out by JPMorgan at a bargain price of $2 per share -- a stunning collapse that ranks as one of the biggest in Wall Street history.

The bearish lesson?
Learn to detect the stench of subprime. Unless you're absolutely certain about an embattled bank's true financial position and risk exposures (a tall order, to be sure), the only reasonable thing to do is walk away. The fall of Bear Stearns, one of Wall Street's most storied firms, sent shock waves through the financial world, but the real question now is: "Who's next?"

The final Foolish move
Investors often focus strictly on stock price movements 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!