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
CapitalSource (NYSE: CSE  )	22.30%
GrafTech International (NYSE: GTI  )	15.17%
Sadia	14.85%
Allied Irish Banks (NYSE: AIB  )	14.62%
BHP Billiton (NYSE: BHP  )	14.51%

There's a reason why I selected notable five-star gainers, as opposed to other big-name winners making noise on Tuesday, like low-rated 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 120,000 CAPS Fools considers its five-star stocks the most likely to outperform the market. And so far, CAPS has indeed proven 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, 99% of the 655 CAPS members who've rated GrafTech International have a bullish opinion of the stock. Just three days ago, one of those Fools, msududek, explained why the graphite products maker looked like a relatively safe bet:

"GTI could go lower as any stock can today, but this price level is pretty cheap ... additionally, i want to stick with the US companies.... I don't trust many of the BRIC stocks today like [Gerdau] or [Mechel]... call me chicken or call me conservative... I just want to have some balance in my portfolio and [GrafTech] under $5 is a great deal."

With the help of yesterday's surge, GrafTech is already up 29% since that call.

The bullish lesson?
Instead of trying to time the market, focus on pricing it instead. As CAPS' msududek understands, if you're able to buy into high-quality companies at deeply discounted prices, chances are your portfolio will turn out great over the long run. Like Warren Buffett once said, "It doesn't have to be rock bottom to buy it. It has to be selling for less than you think the value of the business is, and it has to be run by honest and able people."

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
Salary.com	11.48%
Evergreen Energy	10.00%
Furniture Brands	9.73%
AnnTaylor Stores	8.30%
InterOil (AMEX: IOC  )	7.98%

While yesterday's plunge in highly-rated Rio Tinto (NYSE: RTP  ) 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?
In August, for instance, CAPS All-Star Zeti voiced some doubts over InterOil's stock price:

"I have trouble sharing some of the shareholders enthusiasm with this company. Same old story, same old song. Too much debt and problems, no basis for future if the past is anything to go by."

Consistent with Zeti's comments, shares of the energy company are down 63% since that call.

The bearish takeaway?
Invest with a healthy dose of skepticism. There are certainly companies that have the "next big thing" in their pipeline, but without a solid track record of success, always err on the side of caution. As CAPS's Zeti understands, any company can be bid up on enthusiasm, but if those expectations aren't rooted in economic reality, it's just a matter of time before your rocket stock turns into a dud.

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!