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:

Company

Yesterday's % Gain

Tel Offshore Trust (Nasdaq: TELOZ  )

13.79%

Metalico

11.15%

Petrohawk Energy (NYSE: HK  )

8.49%

Noble Energy

8.41%

National Oilwell Varco (NYSE: NOV  )

8.36%

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 low-rated solar stocks First Solar (Nasdaq: FSLR  ) and Canadian Solar. Stocks go up all the time, but unless you were able to predict the pop, what does it matter?

Our community of more than 110,000 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 178 CAPS All-Stars who've rated Tel Offshore Trust, only two have a bearish opinion. Fueled by that steady support, the small-cap oil and gas trust has kept a five-star rating for the past three months straight.

Last November, CAPS player nostridomisastre displayed utmost trust in the trust:

The price of oil will never go down even if the dollar recovers ground. The question is will the proven reserves within the TELOZ trust continue paying out $0.60 a share? For the time being, and with the Atlantic exploitations they currently operate, beating the S&P over the next couple years shouldn't be a problem.

Tel Offshore has nearly doubled since that call, and it's up an unbelievable 300% over the last year.

The bullish lesson?
There's more than one way to score multibagger returns. Dividend-paying stocks are often associated with a lower-risk, lower-return investment profile, but Tel Offshore clearly shows us what can happen if you find an income-payer with exceptionally huge tailwinds in its favor. As CAPS' nostridomisastre understands, there's nothing sweeter than a low-risk, high-reward investment opportunity.

And now for the losers ...
Of course, winning isn't everything in the stock market. Here are Monday's biggest one-star decliners:  

Company

Yesterday's % Loss

Medis Technologies

26.09%

Circuit City Stores (NYSE: CC  )

21.26%

US Airways

19.37%

Northwest Airlines

17.27%

NIS Group

17.11%

One-star stocks inspire the least confidence from our CAPS players. So although yesterday's drop in highly rated CapitalSource (NYSE: CSE  ) 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 week, for instance, CAPS player compfreak999 shared these bearish thoughts on Circuit City Stores:

  1. Circuit City is inferior compared to Best Buy. Why shop at Circuit City when you can shop at Best Buy?
  2. No turnaround in sight
  3. Circuit City's buyout seems less and less likely to me. First off, they cash asset is quickly dwindling, hence making them less attractive. Also given the liquidity issues on Wall-Street [Blockbuster (NYSE: BBI  ) ] will be hard pressed to finance the purchase (Icahn support? Who knows)

Consistent with that call, shares of Circuit City plunged yesterday, as investors grew increasingly skeptical of the struggling electronic retailer's turnaround story and the prospects for a sale to Blockbuster.

The bearish takeaway?
Stay away from deals that are doomed to disappoint. Some of the good reasons for a merger include gained economies of scale, use of complementary resources, and the elimination of operating inefficiencies. If you ever find a proposed deal with none of the above, and you're completely baffled about why the pair of companies would ever get together, it's probably best to keep your distance.

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!

CapitalSource is a Motley Fool Income Investor pick. The Fool owns shares of CapitalSource. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. The Fool's disclosure policy is always the big winner.


Read/Post Comments (1) | Recommend This Article (3)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 03, 2008, at 3:32 PM, lhmeyer wrote:

    so what happened to TELOZ ....it went from 42 to 20 in just a few days...bet you will not show that one now on your results.

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