Thursday's Biggest Stock Stars

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

Without further ado:

There's a reason I selected notable five-star gainers, as opposed to other big-name winners making noise on Thursday, like low-rated First Solar (NASDAQ:FSLR). Stocks go up all the time, but unless you were able to predict the pop, what does it matter?  

Our community of more than 120,000 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: In the first 20 months since its inception in late 2006, five-star stocks beat the market by 12 points, annualized.

Written in the (five) stars?
For example, 96% of the 57 All-Star members who've rated ReneSola have a bullish opinion of the stock. Just two days ago, one of those All-Stars, crazyrugger, explained why the Chinese solar-wafer maker looked too cheap to pass up:

[A]t these prices people will regret not purchasing. SOL has a decent balance sheet, not great, but really pretty good for how old the company is. At 4.80 this will be a good speculative play. [I] am not going to over invest in this, but it has great growth potential for a low price.

With the help of yesterday's surge, ReneSola is already up 25% since that call.

The bullish lesson?
Learn to pounce on Mr. Market's shortsightedness. High-profile growth stocks aren't always easy on the stomach, but if you truly believe in a company's long-term tailwinds, significant drops in price are the best time to buy. As Warren Buffett once remarked, "Only for short-term investors and market timers is a correction not an opportunity."

And now for the losers ...
Of course, winning isn't everything in the stock market. Here are five of Thursday's biggest one-star decliners:   

While yesterday's plunge in highly rated Global Industries (NASDAQ:GLBL) may have caught our community off-guard, one-star stocks are fully expected to fall hard: Over the 20 months since CAPS started, one-star stocks have dropped by an average of 11.4%, annualized.

Did CAPS call the fall?
In April, for instance, CAPS All-Star deraj83 shared these bearish thoughts on Standard Pacific:

This stock has been beaten up for a reason. The fundamentals are terrible, and there is no good news on the horizon, but these stocks seem to rally every once in a while for no particularly good reason. I intend to remain negative on the homebuilders until one or more of the large players declare bankruptcy.

Not surprisingly, shares of Standard Pacific are down 49% since that call. In fact, yesterday's drop came after the embattled homebuilder said its third-quarter loss widened to $368.8 million from $119.7 million last year -- consistent with deraj83's warnings.

The bearish takeaway?
Never confuse an improving stock price for improving fundamentals. As long as a company's underlying economics continue to deteriorate, short-term, speculation-driven run-ups can only be sustained for so long. By doing your own homework and ignoring Mr. Market's mood swings, as deraj83 demonstrates, you give yourself a better chance of coming to an objective and realistic view of a company's risk/reward profile.

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!