Monday's Biggest Stock Stars

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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:

Company	Yesterday's % Gain
ShengdaTech (Nasdaq: SDTH)	14.72%
Harvest Energy Trust	10.53%
Cogent (Nasdaq: COGT)	9.44%
Tata Motors (NYSE: TTM)	6.97%
Suntech Power (NYSE: STP)	6.05%

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 Research In Motion (Nasdaq: RIMM). 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, 97% of the 542 CAPS members who've rated Motley Fool Hidden Gems Pay Dirt pick Cogent have a bullish opinion of the stock. In late February, one of those Fools, JMJeffrey, explained why the provider of fingerprint-identification systems felt like a bumpy bargain:

Inconsistent earnings typical for this industry make this one a hard one to grasp and value ... The company's share price has suffered by the lack of recent good news and lumpy earnings and now the price sits near its 52 week low. If you believe that biometrics (and thumbprints in particular) has enough substance in it to generate revenue and make profit then you would be wise to back its best horse and cheap price.

Cogent is beating the market by 40 points since that call.

The bullish lesson?
Always be on the lookout for low-risk, high-uncertainty situations. There's nothing Wall Street loves more than smooth, steady, and predictable earnings growth, so naturally, some of the best bargains can be found among companies whose cash flows are inherently more volatile. As Warren Buffett once said, "We prefer a lumpy 15% return to a smooth 12% return."

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:  

Company	Yesterday's % Loss
CBL & Associates Properties	21.19%
China Finance Online	17.25%
Warner Music (NYSE: WMG)	13.36%
Colonial Bancgroup	12.03%
Lamar Advertising	11.83%

While yesterday's plunge in highly rated Intuitive Surgical (Nasdaq: ISRG) 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?
In February , for instance, CAPS member rickdoom was already singing the bearish blues for Warner Music:

There's nothing to like about this stock, and nothing that would justify the huge rally it has sustained so far this year. The company operates in 2 industries-Recording and Publishing-both of which are dying. Their business is way too cyclical and will continue to suffer in a bad economy. ... All things considered, I just don't see now this company can survive much longer.

Not surprisingly, shares of the music recording and publishing company are down 72% since that pitch.

The bearish takeaway?
Always be sure that the (business) trend is your friend. For market-beating returns, it's crucial that you position your portfolio to take advantage of massive shifts in commerce, rather than struggling against where the world is headed. In Wayne Gretzky's words, "Skate to where the puck is going, not to where it's been."

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!