Thursday'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 Thursday's biggest winners among the stocks with a top rating of four or five stars.

Without further ado:

Company	Yesterday's % Gain
Advantage Energy Income Fund (NYSE: AAV)	15.28%
ATP Oil & Gas (Nasdaq: ATPG)	11.71%
Mahindra Satyam (NYSE: SAY)	9.73%
Precision Drilling Trust (NYSE: PDS)	8.21%
JA Solar Holdings	8.02%

There's a reason why I selected those notable gainers, as opposed to other winners making noise on Thursday, like low-rated casino stocks Las Vegas Sands (NYSE: LVS) and MGM Mirage. Stocks go up all the time, but unless you were able to predict the pop, what does it matter?  

Our community of more than 135,000 CAPS Fools considers its "high-star" stocks the most likely to outperform the market.

Written in the (five) stars?
For example, 96% of the 553 members who've rated Advantage Energy have a bullish opinion of the stock. In April, one of those Fools, btucker100, helped our community gain the advantage on Advantage:

This stock has quit paying dividends and will convert from a trust to regular corporation. Though driven by Canadian government changing the rules this will also give them capital to develop new finds. They have a great record of finding new reserves and this will let them develop these reserves.

Shares of the Canadian energy company are already up 49% since that call. In fact, yesterday's double-digit pop came after the corporate conversion was indeed approved by shareholders -- just as btucker100 had written.

The bullish lesson?
Always be aware of where management intends to take you. By figuring out the costs and benefits of previously announced plans (well before Wall Street does), you'll put yourself in a prime position to outperform. As Peter Lynch simply puts it, "You shouldn't just pick a stock -- you should do your homework."

And now for the losers ...
Of course, winning isn't everything in the stock market. Here are five of Thursday's biggest decliners with a one- or two-star rating:  

Company	Yesterday's % Loss
AIG (NYSE: AIG)	27.63%
Saks	9.68%
3Com	8.51%
Abercrombie & Fitch	4.17%
J.C. Penney	3.45%

While yesterday's drop in highly rated Merck (NYSE: MRK) may have caught our community off-guard, low-ranked stocks are fully expected to fall hard.

Did CAPS call the fall?
Last week, for instance, CAPS All-Star TSIF offered some straight talk on AIG's recent reverse split:

While equities do best when priced above $5 per share, (more open to institutional investment and avoids delisting concerns), the ONE for TWENTY, instead of a ONE for TEN is "telling" in regard to AIG's own "opinion" of their outlook. ... A one for twenty just buys them more time before they are sub-$5 again.

Not surprisingly, shares of the embattled insurer are down more than 50% since shareholders approved the reverse split. In fact, yesterday's 28% plunge came as a Wall Street analyst said AIG's equity value may fall to zero -- consistent with TSIF's warning.

The bearish takeaway?
Never confuse a better-looking price for a better-looking business. As long as a company's financial picture continues to deteriorate, short-term, non-fundamental price changes -- especially via reverse split -- can only last for so long. As Benjamin Graham famously said, "In the short run, the market is a voting machine, but in the long run, it is a weighing machine."

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!