Tuesday'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 Tuesday's biggest winners among the stocks with a top rating of five stars.

Without further ado:

Company	Yesterday's % Gain
Golden Star Resources (AMEX: GSS)	16.67%
Northgate Minerals	9.77%
Syneron Medical	6.02%
Silver Wheaton (NYSE: SLW)	4.48%
Teva Pharmaceutical (Nasdaq: TEVA)	4.02%

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 Sirius XM (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 125,000 CAPS Fools considers its five-star stocks the most likely to outperform the market.

Written in the (five) stars?
For example, 95% of the 714 members who've rated Golden Star Resources have a bullish opinion of the stock. Five days ago, one of those Fools, OTMoptionsfool, explained why the stock looked like pure gold:

I like an awful lot of things about this stock and I am a recent buyer at around $1.50 during it’s latest correction. A gold ONLY mining company based in Littleton, CO that has been around since 1984 makes it stable, GOOD at what it does(25 years) AND American owned all of which are characteristics badly needed in this economy today.

With the help of yesterday's pop, shares of Golden Star are beating the market by 20 percentage points since that call.

The bullish lesson?
Learn to pounce on Mr. Market's shortsightedness. As OTMoptionsfool understands, beaten-down stocks aren't always easy to jump into. But if you truly believe in a company's long-term tailwinds, panic-induced price corrections offer the best time to buy. Like Warren Buffett once said, "Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can't buy what is popular and do well."

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
MGIC Investment (NYSE: MTG)	25.22%
PMI Group	24.36%
XL Capital	18.56%
Capital One Financial	16.35%
General Motors (NYSE: GM)	12.80%

While yesterday's plunge in five-star stock Cemex (NYSE: CX) may have caught our community off-guard, one-star stocks are fully expected to fall hard.

Did CAPS call the fall?
In June, for instance, CAPS All-Star tutaemeia was already raising the red flags on MGIC Investment:

Even with 1yr return of -82.886%, who can believe that a company that is offering an EPS at the end of the year of -3.29, have an estimated P/E of -3x, and show an ROE of -48.475 is a good investment. How...and by the way, [MGIC Investment] provides private mortgage insurance in the US. I repeat: PRIVATE MORTGAGE INSURANCE!

Not surprisingly, shares of the mortgage insurer are down an ugly 75% since that call. In fact, yesterday's 25% plunge came after Moody's downgraded the financial ratings of several mortgage insurers on the expectation of widening losses in 2009 -- just as tutaemeia had warned.

The bearish takeaway?
What goes down doesn't always come back up. Trying to catch a falling knife can certainly be profitable, but as tutaemeia understands, you always run the risk of grabbing it at the sharpest place. Like Peter Lynch once wrote, it's better to "wait until the knife hits the ground and sticks, then vibrates for a while and settles down before you try to grab 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!