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 stock Countrywide Financial (NYSE:CFC). Stocks go up all the time, but unless you were able to predict the pop, what does it matter?

Our community of more than 105,000 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 93 CAPS All-Stars who've rated Health Grades, only four have a bearish opinion. Fueled by that Foolish support, the small-cap provider of health-care ratings has kept a four- or five-star rating for more than six months straight.

Back in February 2007, CAPS All-Star indyjoneses handed out a positive grade to Health Grades:

With more and more companies (like my current employer) going to more consumer-driven health care plans, there is the need at both the provider and consumer level to be able to assess various health care options. This company should be well positioned in this arena for a long time...

Health Grades is beating the market since that call.

The bullish lesson?
Let the business trend be your friend. For market-beating returns, always be sure to own companies that stand to benefit from major shifts in the business world, rather than suffer from them. As Wayne Gretzky says, "Skate to where the puck is going, not to where it's been."

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 highly rated Suntech Power Holdings (NYSE:STP) 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 8.7%.

Did CAPS call the fall?
Last May, for instance, CAPS All-Star bluedome shared these bearish thoughts on Ener1:

I believe strongly that lithium batteries will be huge, but this company is trying to do too much, working in fuel cells and nanotech as well.

280k sales last year, market value of 700M now.

That is a price/sales of about 2500.

A bit steep, you think?

Not surprisingly, shares of the Florida-based provider of energy storage solutions are down 26% since that call.

The bearish takeaway?
Just because a company operates in a market with massive potential, that doesn't mean you'll earn a massive return. If the business model isn't fully capable of capitalizing on the opportunity, or if the stock price already reflects flawless execution, you probably won't get compensated well enough for the risks involved. As CAPS' bluedome understands, when a stock is priced for perfection, even perfection won't be enough to earn an outsized return.

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.