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:

Company

Yesterday's % Gain

Silver Wheaton (NYSE: SLW  )

9.08%

Pan American Silver (Nasdaq: PAAS  )

7.74%

Immersion (Nasdaq: IMMR  )

7.05%

Yamana Gold (Nasdaq: AUY  )

6.84%

Home Diagnostics

6.46%

There's a simple reason I selected the largest five-star gainers, as opposed to other big-name winners making noise on Thursday, such as low-rated Sprint Nextel (NYSE: S  ) . 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 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 446 CAPS All-Stars who've rated Silver Wheaton, 98% have a bullish opinion. Fueled by that Foolish support, the Canada-based silver-mining company has maintained a four- or five-star rating for more than six months straight.

Less than two months ago, CAPS player harrisbradley seemed to find Silver Wheaton's silver lining: "With the mixture of an undervalued stock, solid earnings, and expected growth this year I think this stock is a solid buy for the short term. The current low price was due to several one-time issues in shipment which have been reconciled, and should not occur again."

Silver Wheaton stock has risen by a nice 12% since that call.

The bullish lesson?
Whenever the shares of a company you like take a tumble, always try to figure out why. If the reasons for the drop, in your own opinion, are just temporary, then you might have found a good opportunity to buy quality on the cheap. As Warren Buffett says, "Great investment opportunities come around when excellent companies are surrounded by unusual circumstances that cause the stock to be misappraised."

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

Here are Thursday's biggest one-star decliners:   

Company

Yesterday's % Loss

PMI Group (NYSE: PMI  )

19.87%

Radian Group

16.50%

RH Donnelley

15.90%

Dot Hill Systems

15.56%

American Axle

14.68%

One-star stocks inspire the least confidence from our CAPS players. So although yesterday's drop in highly rated Level 3 Communications (Nasdaq: LVLT  ) 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 by an average of 16.6%.

Did CAPS call the fall?
Back in November , for instance, CAPS player chroot shared these bearish thoughts on PMI Group:

PMI, one of the last insurers to fall spectacularly, is also one that has the furthest to fall. ... Their entire business has dried up, and the number of defaults reaches staggering new highs every month, with no end currently in sight. Mortgage insurers are rarely seen positively by the public, and their crucial role in establishing the sub-prime disaster will be held against them for a very long time, even if their fundamentals begin to improve.

Not surprisingly, shares of the California-based mortgage insurer have fallen by a depressing 81% since that call.

The bearish takeaway?
Just because a stock has plummeted in price, that doesn't necessarily make it cheap. Trying to catch a falling knife can be profitable, but only if you can conclude that it's trading well below intrinsic value. Unless you're sure that the absolute worst-case scenario is already priced in, large price plunges are always a real possibility.

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! 

Immersion is a Motley Fool Rule Breakers recommendation. Sprint is a choice at Inside Value. Try any of our Foolish newsletter services 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.


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