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 four or five stars. Without further ado:
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Company
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Yesterday's % Gain
|
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Ingersoll-Rand (NYSE: IR )
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15.66%
|
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SanDisk (Nasdaq: SNDK )
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13.35%
|
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Allegheny Tech (NYSE: ATI )
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9.39%
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|
Coach
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8.99%
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Precision Drilling Trust (NYSE: PDS )
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8.11%
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There's a reason why I selected those notable gainers, as opposed to other winners making noise on Wednesday, like low-rated casino stocks Las Vegas Sands (NYSE: LVS ) and Wynn. 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 "high-star" stocks the most likely to outperform the market.
Written in the (five) stars?
For example, 99% of the 455 All-Star members who've rated Ingersoll-Rand have a bullish opinion of the stock. In January, one of those Fools, sandvig, explained why the industrial manufacturer looked too tempting to pass on:
The immediate future looks scary, but this is a solid company that is selling below book value. They will fare very well when the cycle runs its course. When will that happen? Who knows? But it will.
Consistent with that call, shares of Ingersoll surged yesterday after it posted better-than-expected quarterly results and issued full-year revenue guidance that was also ahead of Wall Street's estimates.
The bullish lesson?
Embrace the bargains that uncertain situations provide. Many investors mistakenly believe that they can relax, wait on the sidelines, and simply jump back in when all of a company's troubles are resolved. But as Warren Buffett reminds us, "The future is never clear, and you pay a very high price in the stock market for a cheery consensus. Uncertainty is actually the friend of the buyer of long-term values."
And now for the losers ...
Of course, winning isn't everything in the stock market. Here are five of Wednesday's biggest decliners with a one- or two-star rating:
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Company
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Yesterday's % Loss
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Morgan Stanley (NYSE: MS )
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8.97%
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Annaly Capital Management (NYSE: NLY )
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7.15%
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Fifth Third Bancorp
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6.82%
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UAL
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6.79%
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State Street
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5.98%
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While yesterday's drop in five-star stock Infinera may have caught our community off-guard, low-ranked stocks are fully expected to fall hard.
Did CAPS call the fall?
Early last year, for instance, CAPS member psychohistorian was already raising the red flags on Morgan Stanley:
Seemingly low valuation is a mirage. Profits are going to be way down for some time, until the next nifty financial debacle comes along. Goodbye junk bonds, savings and loans, and CDOs... hello, um, we don't know what. Hence, cruising for a further bruising short term.
Not surprisingly, shares of the investment banking giant are down over 50% since that call. In fact, yesterday's drop came after the company posted a wider-than-expected first-quarter loss (due in large part to continued real estate weakness) and slashed its dividend to conserve capital -- consistent with psychohistorian's warning.
The bearish takeaway?
Learn to sidestep "low P/E" value traps. As CAPS' psychohistorian understands, stocks often look dirt cheap for very good reasons, the most important of which is a declining, or even disappearing, "E." So unless you're confident that earnings won't sink too far, too fast, seemingly low-P/E bargains can turn into the market's most expensive stocks in a hurry.
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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