Tuesday's Biggest Winners and Losers

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

Without further ado:

Company	Yesterday's % Gain
Alvarion (Nasdaq: ALVR)	6.48%
Chipotle Mexican Grill (NYSE: CMG-B)	6.08%
Smith Micro Software	5.02%
Cemex (NYSE: CX)	4.14%
Montpelier Re Holdings (NYSE: MRH)	2.84%

There's a reason I selected notable five-star gainers, as opposed to other big-name winners making noise on Tuesday. 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 proven its market-beating prowess: Since its inception in 2006, five-star stocks beat the market by 12 points, annualized.

Written in the (five) stars?
For example, an overwhelming 97% of the 150 CAPS All-Stars who've rated Motley Fool Rule Breakers pick Alvarion have a bullish opinion of the stock.

In May, CAPS member RANDBACH explained why the Israeli provider of wireless broadband systems is all set to soar:

Between WIMAX and 3G inovations, WIMAX is ready for complete deployment. It has the largest number of WIMAX deployments around the world to include Asia. Alvarion also has certain patents on technology that should [b]enefit from licensing around the world. The USA is the key to a quantum growth leap.

With the help of yesterday's pop, shares of Alvarion are beating the market since that call.

The bullish lesson?
Learn to combine the best of both "megatrend" and global investing strategies. Important emerging industries are notoriously fraught with risk, but by buying into top-dog first movers with inroads into the fastest-growing markets, you can reduce your downside substantially. As CAPS' RANDBACH understands, the best defense is often a strong, hypergrowth offense.

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

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

Company	Yesterday's % Loss
Evergreen Energy	15.00%
Vonage Holdings (NYSE: VG)	12.16%
Interoil (AMEX: IOC)	7.48%
Sulphco	5.14%
Blockbuster	3.75%

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?
In January 2007, for instance, CAPS member KNolen shared a brutally honest opinion of Vonage Holdings:

[Vonage] stinks as an investment. They have no inherent [competitive] advantage other than their name recognition, and that is a barrier to entry that can be easily surmounted. If [AT&T (NYSE: T)] or [Verizon] decides they want to dominate this space, they will. If a competitor solves the service quality issue experienced by so many users, [Vonage] will be at a competitive disadvantage.

Not surprisingly, shares of the Internet telephone provider are down 80% since that call.

The bearish takeaway?
Never underestimate the protection that a strong economic moat provides. Without a meaningful competitive advantage, a business will always be left vulnerable to stronger or nimbler competition. As Warren Buffett says, "The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage."

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!