Wednesday's Biggest Winners and Losers

Hey there, Fools. I've summoned our Motley Fool CAPS community once again to highlight a few of Wednesday's biggest winners among the stocks with a top rating of five stars.

Without further ado:

Company

Yesterday's Gain

Suntech Power Holdings (NYSE: STP  )

12.44%

Yingli Green Energy

9.73%

CNOOC (NYSE: CEO  )

7.55%

Freeport-McMoRan Copper & Gold (NYSE: FCX  )

7.54%

XTO Energy (NYSE: XTO  )

7.44%

There's a reason I selected notable five-star gainers, as opposed to other big-name winners making noise on Wednesday. Stocks go up all the time, but unless you were able to predict the pop, what does it matter?  

Our community of more than 115,000 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: Since its inception in 2006, five-star stocks are beating the market by 12 points, annualized.

Written in the (five) stars?
For example, an overwhelming 97% of the 991 CAPS All-Stars who've rated Motley Fool Rule Breakers pick Suntech Power have a bullish opinion.

A couple of weeks ago, CAPS member LogicalBalatro helped shed some sunlight on Suntech's situation:

SunTech power is a market leader. Plain and simple, they are one of the top producers of PV cells and modules that provide solar power. They are also in a position to grow in China. ... I think there can be huge gains made here, as the solar market matures and consolidates, I think STP is in a great position to acquire and grow. They have a great ROE, good margins, increasing revenue and big increases in operating income. There are other good solar companies, but I think there are too many momentary fads in solar stock choices, and STP is here for the long haul.

Consistent with that call, shares of Suntech soared yesterday after the Chinese solar cell maker posted sales and earnings growth above 50%, and raised its 2008 revenue guidance, to boot.

The bullish lesson?
Know when to break the rules. Important emerging industries are notoriously fraught with risk, but by buying into top-dog first movers with continuously improving fundamentals, you can reduce your downside substantially. As CAPS' LogicalBalatro understands, the best defense is often a strong, sustainable, hyper-growth offense.

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

Here are five of Wednesday's biggest one-star decliners:  

Company

Yesterday's Loss

Fannie Mae (NYSE: FNM  )

26.79%

Freddie Mac

22.06%

Fleetwood Enterprises (NYSE: FLE  )

18.91%

Radian Group

16.62%

Circuit City Stores (NYSE: CC  )

5.75%

One-star stocks inspire the least confidence from our CAPS members, and for pretty good reason: Since CAPS started, one-star stocks have dropped an average of 11.4%, annualized.

Did CAPS call the fall?
Last month, for instance, CAPS member mikemasland listed several reasons to be bearish on recreational-vehicle maker Fleetwood Enterprises:

U.S. consumers have less expendable income.
The cost to operate/maintain an RV has skyrocketed.
U.S. consumers have less available credit to purchase RVs.
U.S. consumers are dealing with rising unemployment.

Until energy prices decline, real wage inflation occurs, credit conditions stabilize and U.S. employment grows, the earnings growth for [Coachman Industries/Fleetwood/Thor Industries/Winnebago Industries] will continue in a downward trend.

In line with that call, shares of Fleetwood Enterprises plunged yesterday after oil prices surged and Moody's downgraded its financial ratings, sending them deeper into junk status.

The bearish takeaway?
The most important part of analyzing any business is clearly identifying its risk exposures. One of the most common mistakes we make as investors is not paying enough attention to how sensitive a business model can be to specific industry and economic variables. As CAPS' mikemasland understands, when oil prices are running rampant, selling gas-guzzling RVs isn't exactly the most profitable business to be in.

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!

Suntech Power is a Rule Breakers recommendation. CNOOC is a Global Gains selection. Moody's is both an Inside Value and Stock Advisor choice, and Thor is a Motley Fool Hidden Gems Pay Dirt recommendation. Climb aboard our ship of Fools as we navigate the market waters -- 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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