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:

There's a simple reason why I selected the largest five-star gainers, as opposed to other big-name winners making noise on Thursday, like one-star financials Washington Mutual (NYSE:WM) and Wachovia. 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: Since its inception in 2006, CAPS' five-star stocks are beating the market by 12%.

Written in the (five) stars?
For example, out of the 789 CAPS All-Stars who've rated Motley Fool Hidden Gems pick Dawson Geophysical, 98% have a bullish opinion. Fueled by that Foolish support, the small-cap seismic data company has kept a five-star rating for more than six months straight.

In late June, CAPS All-Star dhd1491 explained why the stock was a natural selection:

Business is booming like never before. Natural gas is over $13. And yet, trailing ev/ebitda is only 6.04, trailing pe is only 13.6, and forward pe is 11.2. Only a complete collapse in the price of gas could derail this profit train, but chance favors the possibility of gas going still higher with hurricane season still ahead of us. Can't believe DWSN can be had for under $60 again.

Consistent with that call, shares of Dawson soared yesterday, after the company posted better-than-expected third-quarter earnings on particularly strong demand from its natural gas clients -- just as dhd1491 had figured.

The bullish lesson?
Always let the market come to you. By regularly updating a watch list of exceptional, high-quality companies -- along with prices at which you'd love to own them -- you can take a lot of the guesswork out of investing. As value guru Mohnish Pabrai once said, "If people are patient -- waiting for the right price -- and invest only in areas that they understand, there won't be too many numbers to crunch."

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

Here are Thursday's biggest one-star decliners:  

One-star stocks inspire the least confidence from our CAPS members. So although yesterday's drop in highly rated Akamai Technologies (NASDAQ:AKAM) may have caught our community off-guard, one-star stocks are fully expected to fall hard. Since CAPS started, one-star stocks have dropped an average of 11.4%.

Did CAPS call the fall?
In late March, for instance, CAPS All-Star hirshey shared a few thoughts with our community on the slowing numbers at Independent Bank:

Earnings growth is drastically decreasing and revenue growth is steady at best. Margins are shrinking and the profitability will continue to decrease until sales and innovation take place for this bank. It was overvalued a few months ago and the value catch-up still hasn't taken place.

Shares of Independent Bank are down 73% since that call, and 58% lower over the last year.

The bearish takeaway?
We're investing in businesses, not slips of paper. By putting our money in the business, we expect the company to grow both revenue and earnings, ensuring that our investment grows, too. As CAPS' hirshey understands, if a company sees declining growth on both the top and bottom lines, and has difficulty generating new earnings, chances are we won't see any growth in our own investment, either.

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!