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 I selected notable five-star gainers as opposed to other big-name winners making noise on Monday, like one-star stock Palm (NASDAQ:PALM). Stocks go up all the time, but unless you were able to predict the pop, what does it matter?  

Our community of more than 125,000 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, 88% of the 41 All-Star members who've rated ION Geophysical have a bullish opinion of the stock. Late last month, one of those Fools, tuffsledding, sized up the seismic data provider in bullish terms:

Scooping up solid companies in this oversold sector on the cheap. This will be a multibagger over the next few years. I might be early, but this firesale may not be on for ever.

Shares of ION Geophysical are beating the market by three points since that call.

The bullish lesson?
Instead of trying to time the market, focus on pricing it instead. As CAPS' tuffsledding understands, if you're able to buy into 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 Monday's biggest one-star decliners:   

While yesterday's massive plunge in highly-rated Grey Wolf (AMEX:GW) 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?
Two weeks ago, for instance, CAPS All-Star amicidelbosco took a quick look at General Growth's frightening financial picture:

[General Growth's] aggressive expansion has created a 24 billion [long term debt] which requires 975 million interest payments to service the debt. ... [General Growth] has an outside chance if it suspends the dividend payouts(500 mil), reduces its high administrative costs (60 mil), reduce its estimated annual capital expenditures (880 mil) and dispose of unproductive assets. Then and only then can it avert a TKO.

Not surprisingly, shares of the troubled shopping-mall operator are down 21% since that call.

The bearish takeaway?
Always try to spot a company's hazardous exposures before you get battered by them. When things are going well, it's easy to become complacent as an investor, but that's precisely when you need to make sure management's ambitions aren't jeopardizing the company's long-term survival. Like Warren Buffett says, "You only find out who is swimming naked when the tide goes out."

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!