Wednesday's Biggest Stock Stars

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 top ratings of four or five stars:

Company	Yesterday's Gain
Gilead Sciences (Nasdaq: GILD  )	7.06%
Berkshire Hathaway (NYSE: BRK-A  ) (NYSE: BRK-B  )	5.16%
FormFactor	4.60%
Activision Blizzard (Nasdaq: ATVI  )	3.50%
US Bancorp (NYSE: USB  )	3.33%

There's a reason I selected those notable gainers, as opposed to other winners making noise on Wednesday, like low-rated Palm. Stocks go up all the time, but unless you were able to predict the pop, what does it matter?  

Our community of more than 145,000 CAPS Fools considers its high-star stocks the most likely to outperform the market.

Written in the (five) stars?
For example, 97% of the 1,851 All-Star members who've rated Gilead have a bullish opinion of the stock. Last month, one of those top Fools, mrindependent, kindly brought the biotech bargain to our community's attention:

Gilead is swimming in cash and boasts a 5 yr average historical roe of 49%. ... Sales growth has been spectacular for the last five years and the company even managed significant growth in 2009. Despite all of these positives, Gilead is selling for low multiples compared to its history. ... The timing seems right.

Consistent with that call, shares of Gilead popped yesterday after posting analyst-topping quarterly earnings growth of 52% on strong sales of its HIV drug Atripla.

The bullish lesson?
Learn to combine the best of both value and growth investing worlds. By seeking out fast growing companies at bargain prices, you not only buy into a stock trading below its fair value today, but you also own a business that can increase that value tomorrow. As Warren Buffett reminds us, "Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily understandable business whose earnings are virtually certain to be materially higher five, 10, and 20 years from now."

And now for the losers ...
Of course, winning isn't everything in the stock market.

Here are five of Wednesday's biggest decliners with one- or two-star ratings:   

Company	Yesterday's Loss
GenVec (Nasdaq: GNVC  )	26.32%
Barnes & Noble	8.27%
InterOil (NYSE: IOC  )	7.59%
Pacific Ethanol	5.96%
NutriSystem	3.86%

While yesterday's drop in highly rated U.S. Steel may have caught our community off guard, low-ranked stocks are fully expected to fall hard.

Did CAPS call the fall?
Just two weeks ago, for instance, CAPS All-Star zzlangerhans just couldn't share Mr. Market's enthusiasm for GenVec's cancer drug:

The problem with the recent price rise is that there really hasn't been any good news about TNFerade, or any particular reason to think that the next interim analysis will be any better than the first. A recent orphan drug designation may have attracted attention back to the stock, but was there any doubt they would receive it? The orphan drug status does not represent any form of endorsement of a drug's efficacy by the FDA.

In line with that bearishness, shares of the clinical-stage biotech plunged over 25% yesterday after announcing plans to offer $28 million in common stock and warrants to institutional investors.

The bearish takeaway?
Never confuse an improving price with improving prospects. If a company's underlying fundamentals continue to deteriorate, short-term bouts of exuberance can last for only so long. As Buffett observes, "For some reason, people take their cues from price action rather than from values. ... The dumbest reason in the world to buy a stock is because it's going up."

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 retire wealthy.

Log in to CAPS today and start participating. It's absolutely free -- and a lot of fun!