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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:


Yesterday's Gain



Graham Corp. (AMEX: GHM  )


Matrix Service (Nasdaq: MTRX  )


Peerless Manufacturing (Nasdaq: PMFG  )


NII Holdings (Nasdaq: NIHD  )


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 low-rated 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 95,000 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, out of the 95 CAPS All-Stars who've rated Graham Corp., just a single one has a bearish opinion. Fueled by that top-notch support, the New York-based manufacturer of power generation equipment has kept a perfect five-star rating for more than six months straight.

Last September, CAPS All-Star rd80 highlighted Graham's global appeal:

The customers are all strong markets and Graham sells worldwide. The company has nearly no debt and over $5 a share in cash. Fwd P/E is 14.88, there's only one analyst covering the stock, next year's growth is estimated at 17.3%. Operating and profit margins are both in low double digits. Pays a small dividend.

Graham is up 57% since that call, and has returned an unbelievable 255% over the last year. In fact, yesterday's massive pop came after the company reported 32% growth in fourth-quarter orders, with particularly strong demand coming from Saudi Arabia, Canada, and China -- consistent with rd80's take.

The bullish takeaway?
Getting around the globe is easier than you think. Investing directly in foreign markets can be a tad daunting, but buying into high-quality U.S.-based multinationals is a relatively simple (and effective) way to gain international exposure. As Graham's own portfolio demonstrates, a little global diversification can go a long way toward offsetting any slump here at home.

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

Here are Thursday's biggest one-star decliners:  


Yesterday's Loss

Impac Mortgage Holdings (NYSE: IMH  )




South Financial Group


P.A.M. Transportation Services


Independent Bank


One-star stocks inspire the least confidence from our CAPS players. So although yesterday's drop in highly rated Garmin (Nasdaq: GRMN  ) 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?
One year ago, for instance, CAPS All-Star Allstar13913 touched on the toxicity of Impac Mortgage's holdings:  

This company makes a lot of ALT-A loans, which are calmed stated income loans. In practice these are 'liar' loans.

... when interest rates change, these same people will be left with too many payments and not enough money.

According to, a Senior IMPAC official stated that the business is 75% Alt-A. And defaults doubled year over year. I would be worried. ...

Not surprisingly, shares of the California-based mortgage real estate investment trust (REIT) are down more than 70% since that call.

The bearish lesson?
Where there's smoke, there's often a blazing inferno. Like my Foolish colleague Seth Jayson correctly pointed out last year, Impac's growing delinquencies, as well as its huge exposure to bubble-like markets, should have been obvious red flags for investors. As Seth and CAPS' Allstar13913 demonstrate, it's far better to trust your own data and reasoning than to simply believe a company's "reassuring" words.

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, 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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