Hey there, Fools. I've summoned our Motley Fool CAPS community once again to highlight Wednesday's biggest gainers among the stocks with a top rating of five stars.
Without further ado:
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Company
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Yesterday's % Gain
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The9 Limited (Nasdaq: NCTY)
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9.31%
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AXT
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6.25%
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SXC Health Solutions (Nasdaq: SXCI)
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6.13%
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Informatica
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5.70%
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American Science & Engineering (Nasdaq: ASEI)
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4.51%
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There's a simple reason why I selected the largest five-star gainers, as opposed to other big-name winners making noise on Wednesday, like one-star stock Lehman Brothers (NYSE: LEH). 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. 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 304 CAPS All-Stars who've rated The9 Limited, just five have a bearish opinion. Fueled by that Foolish support, the Chinese online game developer and operator has kept a perfect five-star rating for more than five months straight.
Less than two months ago , CAPS player B1gP1mp12369 highlighted a few of The9's online experiences:
The9 Limited is a leading online game operator in China. ... The9 Limited distinguishes itself from other Chinese gaming companies due to its exclusive licensing rights to games such as World of Warcraft, FIFA Online, Guild Wars; World of Warcraft alone in China has over 800,000 players. Buy now at the cheap price of $21.84 and watch it go up, up, up, as the huge economic growth spurt in China is far from over.
The9 is already up 22% since that call.
The bullish lesson?
Not all fashionable franchises are "pie in the sky" long shots. Even the most ardent value investors know the benefit of buying pioneering small caps with real, tangible, and wildly popular brands. As long as you thoroughly understand the business model and can estimate its market potential within reason, investing in familiar technologies can be a great way to beat the street.
And now for the losers ...
Of course, winning isn't everything in the stock market. Here are Wednesday's biggest one-star decliners:
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Company
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Yesterday's % Loss
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PMI Group (NYSE: PMI)
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19.39%
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Visteon
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16.73%
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Hertz Global Holdings
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16.17%
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General Motors (NYSE: GM)
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15.06%
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Thomas Weisel Partners
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15.05%
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One-star stocks inspire the least confidence from our CAPS players. So although yesterday's drop in five-star stock Mechel (NYSE: MTL) 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?
A couple of months ago, for instance, CAPS player BonusCash shared this frightening fact about cash-strapped General Motors:
Negative $65 book value per share. They would need to make $4/share/year for over 16 years just to get back to ZERO book value. It seems to just be too much of a debt burden on them.
Not surprisingly, shares of the automaker are already down 56% since that call. In fact, the stock sank below $10 for the first time in over 50 years yesterday after analysts raised concerns over the company's cash position -- exactly as CAPS' BonusCash had warned.
The bearish takeaway?
Always follow the cash flow. Investing, after all, is about putting money up front today so you can get more of it in return tomorrow. If a company bleeds cash -- and worse yet, has few prospects for future cash-flow production -- chances are you won't see a return of your capital, much less a return on your capital.
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!
Follow along with the Global Gains team as they travel to key business centers in China to uncover the very best investing opportunities! Sign up here to receive their FREE dispatches from the road.
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