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 top ratings of four or five stars:
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Company
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Yesterday's Gain
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Interactive Intelligence (Nasdaq: ININ )
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19.61%
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Headwaters
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9.67%
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Akamai
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3.38%
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U.S. Steel
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3.30%
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Yamana Gold (NYSE: AUY )
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3.03%
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There's a reason I selected those notable gainers, as opposed to other winners making noise on Tuesday, like low-rated DryShips (Nasdaq: DRYS ) : Stocks go up all the time, but unless you were able to predict the pop, what does it matter?
Our community of more than 140,000 CAPS Fools considers its high-star stocks the most likely to outperform the market.
Written in the (five) stars?
For example, 97% of the 164 All-Star members who've rated Motley Fool Rule Breakers recommendation Interactive Intelligence have a bullish opinion of the stock. In January, one of those top Fools, SkinInvest, made a particularly prescient call on the call center software specialist: "This company has been caught up in all the selling, but it's well run and they focus on what they do well. They have a lot of potential to double or triple over the next few years."
Interactive Intelligence, indeed, has already more than tripled since that pitch. In fact, yesterday's near-20% pop came after the company issued third-quarter guidance well above expectations on strong revenue growth.
The bullish lesson?
Know when to break the rules. Technology stocks are notoriously fraught with risk, but by buying into dynamic companies with genuine game-changing prospects, you can reduce your downside substantially. As CAPS' SkinInvest, along with our Rule Breakers team, understands, identifying overlooked small caps on the cusp of huge profitability can actually be a safe path to multibagger returns.
And now for the losers ...
Of course, winning isn't everything in the stock market.
Here are five of Tuesday's biggest decliners with one- or two-star ratings:
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Company
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Yesterday's Loss
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STEC (Nasdaq: STEC )
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8.29%
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Hartford Financial
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6.76%
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Geron
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5.24%
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Sprint Nextel (NYSE: S )
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4.75%
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First Solar (Nasdaq: FSLR )
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3.55%
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While yesterday's drop in highly rated Synaptics (Nasdaq: SYNA ) may have caught our community off guard, low-ranked stocks are fully expected to fall hard.
Did CAPS call the fall?
One month ago, for instance, CAPS All-Star ACMIP warned Fools about chasing after STEC:
[A]t some point I think the combination of STEC's ludicrous valuation, coupled with the onslaught of competition coming their way (which btw will almost certainly compete away any of the excess profits it is currently generating) should cause investors to place a much more rational valuation of this business.
Following yesterday's loss, shares of the solid-state-drive maker are already down 28% since that warning.
The bearish takeaway?
Implicit in a stock's price are very specific growth and risk assumptions. Therefore, it's your job as an investor to assess whether those assumptions are reasonable, given the company's financial and competitive position. As Warren Buffett reminds us, "The investor of today does not profit from yesterday's growth."
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 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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