Hey there, Fools. I've summoned our Motley Fool CAPS community once again to highlight a few of Thursday'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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Sigma Designs (Nasdaq: SIGM )
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5.77%
|
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Copart (Nasdaq: CPRT )
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4.55%
|
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Canadian Natural Resources (NYSE: CNQ )
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4.58%
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Altria Group (NYSE: MO )
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3.85%
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Adobe Systems
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3.68%
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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 Thursday. Stocks go up all the time, but unless you were able to predict the pop, what does it matter?
Our community of more than 130,000 CAPS Fools considers its five-star stocks the most likely to outperform the market.
Written in the (five) stars?
For example, 97.6% of the 1,514 members who've rated Copart have a bullish opinion of the stock. Just last week, one of those Fools, Northville, explained why the vehicle-salvage service provider looked too cheap to pass up:
OK, this is the kind of company that I like -- reasonably priced growth. PE 16x, ROI 17.5 and a dedicated founder who is still somewhat involved in the company (his son-in-law has run the day to day operations for a few years now).
Copart is beating the market by 17 points since that call. In fact, yesterday's pop came despite posting a second-quarter decline in revenue, operating income, and net income -- consistent with Northville's bargain-based reasoning.
The bullish lesson?
Always be on the hunt for stocks priced for imperfection. It's virtually impossible to call "bottom" on a stock, but if you're confident that the risks are already baked into the price, there's a good chance your investment will turn out well. As Warren Buffett recently wrote, "Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down."
And now for the losers ...
Of course, winning isn't everything in the stock market.
Here are five of Thursday's biggest one-star decliners:
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Company
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Yesterday's % Loss
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MGIC Investment
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30.88%
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Ambac Financial (NYSE: ABK )
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22.22%
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MBIA (NYSE: MBI )
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20.49%
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Fifth Third Bancorp
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20.35%
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Fortress Investment Group
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19.18%
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While yesterday's drop 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 August, for instance, CAPS All-Star joker245 voiced these bearish concerns over bond insurers Ambac and MBIA:
[Ambac] and [MBIA], ultimately, offer a worthless product. … there is a ton of paper out there insured by [Ambac] that becomes callable if [Ambac's] ratings drop. There has got to be a lot of political pressure on the ratings agencies right now to keep these insurers afloat. But what happens if defaults rise and they have to cover the losses with their undercapitalized balance sheet?
Not surprisingly, shares of Ambac and MBI are down 83% and 47%, respectively, since that was written.
The bearish takeaway?
Always identify a stock's risk exposures before they come back to haunt you. One of the most common mistakes we can make as investors is failing to see the dangerous things that lurk just around the corner. Unless you're willing to consider all of the possible ways your stock might get killed -- both in the short and the long run -- there's a good chance you'll wake up one day and get blindsided.
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!
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