Tuesday's Biggest Stock Stars

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
NightHawk Radiology (Nasdaq: NHWK  )	4.33%
MetroGAS	3.75%
ICO	2.93%
Shanda Interactive (Nasdaq: SNDA  )	1.90%
Duke Energy (NYSE: DUK  )	1.29%

There's a reason why I selected notable five-star gainers, as opposed to other big-name winners making noise on Tuesday, like bouncy 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 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 98% of the 125 CAPS All-Stars who've rated Motley Fool Hidden Gems Pay Dirt pick NightHawk Radiology have a bullish opinion of the stock.

In April, CAPS All-Star JMJeffrey helped bring the small-cap provider of radiology services to our community's attention:

[NightHawk] is a first mover and market leader in the field of outsourced health services providing teleradiology (reads radiology images) during the off hours and weekends when regular specialists are not available. ... Yes, the waters are choppy (read: risk) but I believe that [NightHawk] has the management, technology and business plan to fly in this nascent field. ... I see the niche and the upside in addition to a well-run company trying to capitalize on it.

NightHawk Radiology is up a nice 14% since that call.

The bullish lesson?
Know when to break the rules. Important emerging industries are notoriously fraught with risk, but by identifying exceptional management teams sharp enough to take advantage of the opportunities, you can reduce your downside substantially. As CAPS' JMJeffrey understands, you can have the fastest horse in the world, but if the jockey riding it stinks, your odds of making money fall sharply.  

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
Lehman Brothers (NYSE: LEH  )	44.95%
Radian Group	24.11%
PMI Group	23.36%
Ambac Financial (NYSE: ABK  )	20.63%
MGIC Investment	15.68%

While yesterday's drop in highly rated solar stocks MEMC Electronic and Yingli Green Energy (NYSE: YGE  ) 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%, annualized.

Did CAPS call the fall?
Less than a month ago, for instance, CAPS member anchak was voicing skepticism over the proposed deals at Lehman Brothers:

End game pick..... It'll either fall flat and go against me big time .....or else ....This is the biggie about to fall. One thing about the Korea deal - they actually expressed a lot of concern on the asset quality. Given the way the sovereign funds have been burnt - I would exact a huge discount ( aka [JPMorgan]-Bear) , if I was in this position …

Of course, consistent with anchak's warnings, shares of the embattled investment bank plunged more than 40% yesterday on reports that talks with the Korea Development Bank were finally called off.

The bearish takeaway?
Leave the speculation to Wall Street. As CAPS' anchak understands, as long as you keep a razor-sharp focus on a company's fundamentals, you can prevent yourself from taking bad, long-shot bets no matter how tempting they might be. As Benjamin Graham once said, "In the short run, the market is a voting machine, but in the long run, it is a weighing machine."

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!