Monday's Biggest Stock Stars

Hey there, Fools. I've summoned our Motley Fool CAPS community once again to highlight a few of Monday'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 Monday, like low-rated Sirius XM Radio (NASDAQ:SIRI). 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 after 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 355 members who've rated Xinyuan Real Estate have a bullish opinion of the stock. Last month, one of those Fools, Volibolero, shared some inside insights into the Chinese real estate developer:

Currently, I live in China. Homes are typically purchased with 30% down. In my opinion, there is very little "artificial demand" created by easy money or leverage in the middle income housing market here. ... [Xinyuan RE] has simply been pulled down recently, as anything related to China or Real Estate has been destroyed by the unwinding of the housing market bubble and China stock market bubble, but not all homebuilders are the same... and not all Chinese stocks are the same.

With the help of yesterday's pop, Xinyuan is beating the market by 28% since that call.

The bullish lesson?
Take advantage when Mr. Market throws an attractive baby out with the bathwater. When things get shaky, investors tend to sell stocks haphazardly, based simply on the sector (or country) they are in, rather than analyzing things on a case-by-case basis. As Motley Fool Global Gains advisor Bill Mann recently wrote, "Right now you can buy fantastic Chinese companies ... as if they will show no growth for years to come. And that's just crazy."

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

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

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

Did CAPS call the fall?
Late last week, for instance, CAPS member jester112358 chimed in with some bearish thoughts on General Motors:

This call is based upon the large probability that bankruptcy is the only solution for this company, followed by reorganization to wipe out pension and medical liabilities. The only other possibility is a massive government bailout - but this too would likely wipe out share and debt holders.

Consistent with that call, shares of GM touched a 62-year low yesterday after two Wall Street firms downgraded the automaker on growing liquidity and revenue concerns.

The bearish takeaway?
There's no such thing as a free lunch. As CAPS' jester112358 understands, help from the U.S. government doesn't necessarily mean that current GM shareholders stand to benefit. Unless you're truly able to discount the massive dilution effects that are certain to arise from any bailout effort, buying into GM is strictly speculation.

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 into CAPS today and start participating. It's absolutely free and a lot of fun!