Wednesday's Biggest Stock Stars

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:

Company	Yesterday's % Gain
Ambassadors Group (Nasdaq: EPAX)	27.11%
Infinera (Nasdaq: INFN)	17.24%
EMC (NYSE: EMC)	13.72%
A-Power Energy Generation Systems (Nasdaq: APWR)	11.90%
Nabi Biopharmaceuticals	10.89%

There's a simple reason I selected the largest five-star gainers, as opposed to other big-name winners making noise on Wednesday, such as one-star mortgage giants Fannie Mae (NYSE: FNM) and Freddie Mac: 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, CAPS' top-rated stocks returned roughly 28%.

Written in the (five) stars?
For example, out of the 232 CAPS All-Stars who've rated Motley Fool Rule Breakers pick Infinera, only four have a bearish opinion. Fueled by that Foolish support, the California-based provider of networking technology has kept a four or five-star rating for more than six months straight.

In November 2007, CAPS All-Star TMFBreakerJava noted Infinera's almost infinite growth prospects:

Optimizing optical networks can greatly increase their throughput and Infinera's technology allows providers to do this in a cost-effective way. ... When network owners can provide this bandwidth through inexpensive optimization rather than the laying of new fiber, the cost advantages are enormous. This is the [what will propel] Infinera's explosive growth.

Consistent with that call, shares of Infinera surged yesterday after its second-quarter earnings topped analyst expectations on strong companywide sales.

The bullish lesson?
Know when to break the rules. New technologies are notoriously fraught with risk, but by buying into genuine top-dog first-movers filling huge needs in the marketplace, you can reduce your downside substantially. As CAPS' TMFBreakerJava, along with the rest of our Rule Breakers team, understands, identifying breakthrough, cost-saving technologies on the cusp of huge profitability can be a great way to rack up multibagger returns.

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

Here are Wednesday's biggest one-star decliners:  

Company	Yesterday's % Loss
Washington Mutual (NYSE: WM)	20.10%
First Place Financial	15.40%
BearingPoint	14.12%
GeoGlobal Resources	11.57%
Unisys	8.85%

One-star stocks inspire the least confidence from our CAPS members. So although yesterday's drop in five-star oil stocks XTO Energy (NYSE: XTO) and Oilsands Quest 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?
One month ago, for instance, CAPS member joker245 shared these bearish musings on Washington Mutual:

WaMu is the poster child for the mortgage mess. ... A few years back they were expanding their retail operations thinking the profits from mortgage underwriting would pay for it. Hmmm, how'd that work out? Last I checked they were closing branches right and left. ... This ship isn't sinking, it's sunk. Everyone just hasn't drowned yet.

In line with that pitch, shares of Washington Mutual plunged yesterday after the Seattle-based bank posted a staggering second-quarter loss of $3 billion and suffered an S&P credit-rating downgraded as a result.

The bearish takeaway?
Learn to avoid growth when it has gone absolutely wild. When things are going great, it's easy to become complacent as an investor, but that's precisely when you need to make sure management's ambitions aren't getting in the way of sustainable growth. As Warren Buffett says, "You only find out who is swimming naked when the tide goes out."

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!