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 the stocks with a top rating of five stars.

Without further ado:

Company

Yesterday's % Gain

China Security & Surveillance Technology (NYSE: CSR  )

14.24%

Coeur d'Alene Mines (NYSE: CDE  )

7.59%

Internet Initiative Japan

7.03%

Layne Christensen (Nasdaq: LAYN  )

6.82%

Sutor Technology Group

6.55%

There's a simple reason why I selected the largest five-star gainers, as opposed to other big-name winners making noise on Thursday, like one-star homebuilders Beazer Homes and Lennar (NYSE: LEN  ) . Stocks go up all the time, but unless you were able to predict the pop, what does it matter?   

Our community of more than 93,000 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 69 CAPS All-Stars who've rated China Security & Surveillance so far have a bullish opinion. On the strength of that top-notch support, the Shenzhen-based provider of digital surveillance technology has kept a four or five-star rating for over six months straight.

Two-and-a-half months ago, CAPS player NeroSagetrade offered some security surveillance of his own:  

China Security and Surveillance is trading at just 11 times future earnings despite huge revenue growth. 32M in revenue in 2006, 106M in 2007 and schedule to add 122% in 2008 and 52% on 2008s numbers in 2009. HUGE growth opportunity here. Plenty of cash, tons of new contracts, limitless momentum.

Consistent with NeroSagetrade's take, shares of China Security popped yesterday after the company said it won a new $114 million contract from the government of Jining City, to install security cameras and related equipment.  

The bullish takeaway?
Pay attention to small caps that habitually land big business. Just a few major contract wins can translate into exponential growth for a little company, so focus on proven firms with big industry trends working in its favor. If those tailwinds are strong enough, as they appear to be for China Security, blockbuster deals will likely keep blowing in that company's direction.  

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

Here are Thursday's biggest one-star decliners:   

Company

Yesterday's % Loss

Radian Group (NYSE: RDN  )

11.77%

West Marine (Nasdaq: WMAR  )

11.10%

Constant Contact

10.82%

PHH

10.34%

Friedman Billings Ramsey Group

10.31%

One-star stocks inspire the least confidence from our CAPS players. So although yesterday's drop in highly-rated Oracle (Nasdaq: ORCL  ) 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?
Back in May, for instance, CAPS player GeorgeAndGracie had a sinking feeling about West Marine:   

[West Marine], in my opinion, is lacking corporate cohesiveness, strategy, and overall leadership. They are unable to convert their position into a strategy for sustained growth or even success. A good competitor could overtake them quickly. A small competitor could help them regain focus.

Not surprisingly, shares of the boating supplies retailer have plunged 46% since that call. In fact, yesterday's loss came after the company posted a wider-than-expected fourth-quarter loss, and issued disappointing full-year guidance to boot. 

The bearish lesson?
If you don't like the jockey, try not to bet on the horse. One of the most important, but often overlooked, aspects of investing is being able to spot model management who consistently build shareholder wealth. As CAPS' GeorgeAndGracie understood, sub-par leadership is often a good predictor of sub-par returns.

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, 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! 


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