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 top ratings of four or five stars:
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Company
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Yesterday's Gain
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Suntech Power (NYSE: STP )
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5.96%
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Momenta Pharmaceuticals (Nasdaq: MNTA )
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5.91%
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Agria
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4.79%
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GameStop
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1.70%
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Yamana Gold (NYSE: AUY )
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1.29%
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There's a reason I selected those notable gainers, as opposed to other winners making noise on Thursday, like low-rated Sunrise Senior Living. 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, 96.6% of the 4,424 members who've rated Motley Fool Rule Breakers pick Suntech have a bullish opinion of the stock. In March, one of those Fools, MrSonics, explained why the solar panel maker would start to brighten up: "Solar's been beaten down due to many reports of oversupply and crowded competition ... The competition will thin, with only the strongest surviving to capitalize on the economic recovery in 12-24 months ... especially with its 'green' emphasis."
Shares of Suntech are up an amazing 200% since that call. In fact, yesterday's market-bucking pop came after the company raised its full-year outlook on significantly increasing demand.
The bullish lesson?
When searching for value in beaten-down sectors, "good" is almost never enough. As CAPS' MrSonics understands, the key to dumpster diving is buying into best-of-breed businesses that actually stand to benefit from an industry shakeout (by growing market share at the expense of weaker competitors). Sometimes, we can get away with investing in second-rate companies, but when times are tough, it's crucial to stick with the leader.
And now for the losers ...
Of course, winning isn't everything in the stock market.
Here are five of Thursday'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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Hot Topic (Nasdaq: HOTT )
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13.04%
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Radian Group
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7.04%
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MGM Mirage (NYSE: MGM )
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5.15%
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Sears Holdings (Nasdaq: SHLD )
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3.72%
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Las Vegas Sands
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3.69%
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While yesterday's drop in highly rated Intel (Nasdaq: INTC ) may have caught our community off guard, low-ranked stocks are fully expected to fall hard.
Did CAPS call the fall?
In April, for instance, CAPS member TradingBandit helped prevent Fools from getting burned by Hot Topic: "High P/E plus inconsistent earnings history, selling dying fashion trends and overpriced compared to sector members. Recent rise is a short-squeeze and is worth around 5 bucks and is headed there soon."
Consistent with that warning, shares of the specialty teen retailer are down 55% since that warning. In fact, yesterday's double-digit slide came after the company posted a third-quarter earnings drop of 21% and issued a weak holiday season outlook, to boot.
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 competitive position going forward. 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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