Hey there, Fools. I've summoned our Motley Fool CAPS community once again to highlight a few of Wednesday's biggest winners among the stocks with a top rating of five stars.
Without further ado:
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Company
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Yesterday's Gain
|
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Bruker (Nasdaq: BRKR )
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35.22%
|
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Eagle Rock Energy Partners (Nasdaq: EROC )
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15.06%
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Charles River Labs
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4.48%
|
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Medco Health Solutions (NYSE: MHS )
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4.44%
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Stryker
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2.32%
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There's a reason why I selected notable five-star gainers, as opposed to other big-name winners making noise on Wednesday, like low-rated Yahoo! (Nasdaq: YHOO ) . 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, 94% of the 224 members who've rated Bruker have a bullish opinion of the stock. Last month, one of those members, teamrider, explained why the X-ray technology company seemed ready to surge:
[D]rugs and explosives detection instrument has been announced, explaining heavy insider buying over the last month in spite of a quaking market slump. Huge military and civilian security contracts right around the corner... rest of the medical business is all about the future too.
Just as teamrider predicted, shares of Bruker soared yesterday after the company announced a $12 million contract with the Japanese National Police Agency to install its forensic toxicology and residue analysis systems.
The bullish lesson?
Pay attention to small stocks that make a habit of landing big deals. Just a couple of major contract wins can have a huge impact on a small business, so focus on the innovative and reputable ones with big-industry trends working in their favor. If those tailwinds are strong enough, blockbuster deals will probably keep blowing in that company's direction.
And now for the losers ...
Of course, winning isn't everything in the stock market.
Here are five of Wednesday's biggest one-star decliners:
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Company
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Yesterday's Loss
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Sterling Financial (Nasdaq: STSA )
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47.29%
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MGIC Investment
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16.47%
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Palm
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15.09%
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Hovnanian Enterprises
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12.50%
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US Airways (NYSE: LCC )
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10.64%
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While yesterday's drop in five-star miners Teck Cominco and Freeport-McMoRan (NYSE: FCX ) may have caught our community off guard, one-star stocks are fully expected to fall hard: In the 20 months after CAPS started, one-star stocks dropped an average of 11.4%, annualized.
Did CAPS call the fall?
Just two days ago, for instance, CAPS All-Star EnochRoot raised a major red flag on Sterling Financial:
Some [Federal Home Loan Banks (FHLB)] have recently indicated they are falling below regulatory minimum capital requirements and as a result will not pay dividends, redeem or repurchase capital stock. Repercussions for FHLB's member bank/owners include higher borrowing costs, writedowns to their common stock stakes in the FHLB, and reduced NII from reduced dividends from their FHLB.
Consistent with that call, shares of Sterling Financial lost nearly half of their value after the bank suspended its dividend late on Tuesday, and said it expects to report a loss for the fourth quarter -- exactly as EnochRoot had warned.
The bearish takeaway?
Learn to dodge dangerous dividends. A high-yielding stock is always alluring at first glance, but if that company lacks the earning power to sustain that dividend, it's only a matter of time before investors get burned. As CAPS' EnochRoot understands, a juicy-looking dividend is only as good as the business behind it.
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!
On Jan. 12, 2009, Fool co-founder David Gardner, Jeff Fischer, and their Motley Fool Pro team will accept new subscribers to their real-money portfolio service. Motley Fool Pro is investing $1 million of the Fool's own money in long and short positions in a range of securities, including common stocks, put and call options, and exchange-traded funds (ETFs). They also incorporate proprietary CAPS "community intelligence" data into their research. To learn more about Motley Fool Pro, and to receive a private invitation to join, simply enter your email address in the box below.
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