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.

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 yesterday, like one-star stock Krispy Kreme Doughnuts (NYSE: KKD). 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 proved its market-beating prowess: Over its first year, top-rated stocks returned roughly 28%.

Written in the (five) stars?
For example, out of the 325 CAPS All-Stars who've rated Chemical & Mining Co. of Chile, only four have a bearish opinion. Fueled by that Foolish support, the Chilean fertilizer producer has kept a five-star rating for over six months straight.

Last month, CAPS player jimanator49 helped fertilize the bull case:

With the current price of grains and other crops farmers are looking for anyway possible to produce higher [yields]. This means they will be using more and more fertilizer. The demand goes up so does the price.

Chemical & Mining Co. of Chile is up 28% since that call. In fact, yesterday's jump came after Chile's Banchile brokerage upgraded the stock on rising international fertilizer demand -- consistent with jimanator49's take. The stock is also a top pick on today's "Wall Street's Buy List."

The bullish lesson?
What goes up doesn't always have to come back down. Regardless of past gains, a stock can always go higher if the story is still good, the fundamentals keep improving, and the valuation remains cheap relative to future growth potential. Ignoring a stock simply because it has soared in price is one of the easiest ways to miss out on the next round of multibagger returns.

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. So although yesterday's drop in five-star stock Immersion (Nasdaq: IMMR) 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?
Two months ago, for instance, CAPS All-Star ANALYST10 peered into Pier 1 Imports' troubled picture:

Latest (4-10) Earnings Report unconvincing in terms of a true turn-around...It's just marginally better than the past 3 years of increasingly horrid results due to write-downs, closings etc. What makes this Retail stock's (economy/recession) outlook much worst than most stores is its direct-correlation to the housing market, which will remain in the dumpster for quite sometime.

Consistent with that call, shares of Pier 1 plunged yesterday after investors jeered the company's offer to acquire fellow one-star retailer Cost Plus for fear that it would be just another distraction in the harsh housing environment.

The bearish takeaway?
Two wrongs don't make a right. When your company is struggling to survive in a brutal market, gobbling up yet another embattled player would seem like the last thing you would want as an investor. Betting on a turnaround is tricky enough, but when your company is faced with the challenge (headache) of integrating a troubled competitor, it might make things that much tougher.

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!