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:

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 investment banks Lehman Brothers (NYSE: LEH) and Bear Stearns. 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 proven its market-beating prowess: Over its first year, top-rated stocks returned roughly 28%.

Written in the (five) stars?
For example, of the 360 CAPS All-Stars who've rated TBS International, only four have a bearish opinion. Fueled by that support, the owner and operator of drybulk carriers recently regained its five-star rating.

Late last month, CAPS All-Star Superunderdoggie let us in on some valuable lessons:

I truly am a fool for being an emotional investor and selling this at $40.60 a few days ago after buying it at $21.90. ... The management team of this company is brilliant and I have tremendous faith in their leadership. Well positioned stock for global opportunities and they are making all the right moves managing their finances and expanding their fleet.

Just as Superunderdoggie suspected, shares of TBS have managed to climb another 34% since that pitch.

The bullish lesson?
Always think twice before you let a good thing go. As CAPS' Superunderdoggie figured out, finding well-positioned businesses, run by management you're completely comfortable with, is pretty rare, so it might be worth holding onto regardless of how "expensive" it might seem. Like Warren Buffett says, "Our favorite holding period is forever."

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

Here are Thursday's biggest one-star decliners:  

One-star stocks inspire the least confidence from our CAPS players. So although yesterday's drop in five-star stock Ctrip.com (Nasdaq: CTRP) 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 metaphorical shared this succinct bear call on Salary.com:

A well-known place for salary data, yet remains a complex and uninspiring website despite years of development. They have little moat against new and cleverer Web 2.0 startups such as payscale.com.

Consistent with that take, shares of the compensation-solutions provider plunged yesterday after the company posted a hefty fourth-quarter loss, said it expects to lose between $22 million and $25 million in fiscal 2009, and announced a shift in business strategy.

The bearish takeaway?
Never underestimate the benefits of an economic moat. Without a meaningful competitive advantage, a company will generally see its returns on capital diminish as newer and nimbler competition moves in. As CAPS' metaphorical shows, by remaining disciplined and forcing yourself to identify a company's competitive edge, your odds of avoiding the next dot-com disappointment increase dramatically.  

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!