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 why I selected notable five-star gainers, as opposed to other big-name winners making noise on Thursday, like one-star stock Vonage Holdings (NYSE:VG). 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, 98% of the 1,072 members who've rated Motley Fool Hidden Gems pick inVentiv Health have a bullish opinion of the stock. Last month, one of those Fools, wolfhounds, explained why the pharmaceutical service provider seemed like a steal:

This stock is priced as if at least half it's future business has permanently disappeared. The mantra of the drug and biotech industries in recent years has been the necessity to reduce costs by outsourcing. At a current p/e of less than 7, it is highly likely increased business in future years could make this one of the great buys in this fearful market.

Consistent with that call, shares of inVentive surged yesterday after posting better-than-expected third-quarter results.

The bullish lesson?
The stocks with the best risk/return profile are priced for imperfection. It's virtually impossible to call "bottom" on a stock, but if you're confident that the risks are already baked into the price, there's a good chance your investment will turn out well. As legendary value investor Sir John Templeton famously said, "The time of maximum pessimism is the best time to buy."

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 five-star stock McDermott International (NYSE:MDR) 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 dropped an average of 11.4%, annualized.

Did CAPS call the fall?
Just last week, for instance, CAPS member RXDOC73 shared some bearish thoughts on Ann Taylor:

High priced merchandise in this time of financial hardships and job layoffs will certainly keep shoppers away from this retailer. Their black Friday will probably remain red and continue into 09.

In line with that pitch, shares of Ann Taylor tanked yesterday, after the women's retailer cut its third-quarter sales forecast on the "dramatic deterioration in both the financial markets and the macroeconomic environment" -- just as RXDOC73 had warned.

The bearish takeaway?
Always know where you're exposed. One of the most common mistakes we make as investors is underestimating how sensitive a business model can be to specific economic and industry-related variables. As CAPS' RXDOC73 understands, buying into high-end retailers during a time when consumers are squeezing spending might spell trouble.

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!