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:

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 three-star stock 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 100,000 CAPS Fools considers its five-star stocks the most likely to outperform the market. And so far, CAPS has indeed proved its market-beating prowess: Over its first year, top-rated stocks returned roughly 28%.

Written in the (five) stars?
All of the 69 CAPS All-Stars who've rated Preformed Line Products have a bullish opinion. On the strength of that support, the small-cap provider of networking equipment has kept a perfect rating for more than six straight months.

One year ago, CAPS All-Star sciencebzzt wrote a few lines on why Preformed Line was worth owning:

-They've been paying dividends every three months from the start.
-Their financials are stellar.
-No one on Wall St is paying attention to them.
-Insider ownership is over 90%, and that's one of my favorite signs, it doesn't always translate into a fantastic company, but it does mean that the insiders have a tangible investment in the company and they really believe in it. ...

They're one of those behind the scenes kind of businesses that are integral to our society, yet no one really knows about.

Preformed Line is up more than 30% since that call.

The bullish lesson?
Look for insiders who "eat their own cooking." Founders and managers have better insights into the prospects for their business and industry, so a high ownership stake is often a very positive sign. When the people running your company are real, honest-to-God partners, the odds of profiting from their decisions increase dramatically.

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. Although yesterday's drop in five-star stock CryptoLogic (NASDAQ:CRYP) 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 month, for instance, CAPS All-Star deraj83 built this bearish argument against Standard Pacific:

This stock has been beaten up for a reason. The fundamentals are terrible, and there is no good news on the horizon, but these stocks seem to rally every once in a while for no particularly good reason. I intend to remain negative on the homebuilders until one or more of the large players declare bankruptcy. (My bet is on [Standard Pacific], maybe [Beazer Homes], being the first.)

Shares of the California-based homebuilder are already down more than 40% since that pitch. In fact, yesterday's plunge came after the company posted a wider-than-expected first-quarter loss of $216.4 million, as the slumping housing market continued to force heavy land charges -- right in line with deraj83's take.

The bearish takeaway?
Never confuse an improving stock price for improving fundamentals. As long as a company's underlying economics continue to deteriorate, short-term, speculation-driven run-ups can only be sustained for so long. By doing your own homework and ignoring Mr. Market's mood swings, like deraj83 advised, you give yourself a better chance of coming to an objective and realistic view of a company's risk/reward profile.

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!