Hey there, Fools. I've summoned our Motley Fool CAPS community once again to highlight a few of Monday'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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Sequenom (Nasdaq: SQNM )
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7.13%
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A-Power Energy
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6.94%
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Frontline (NYSE: FRO )
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4.07%
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UnitedHealth Group (NYSE: UNH )
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3.57%
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American Capital (Nasdaq: ACAS )
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3.44%
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There's a reason I selected those notable gainers, as opposed to other winners making noise on Monday, such as low-rated AIG (NYSE: AIG ) . Stocks go up all the time, but unless you were able to predict the pop, what does it matter?
Our community of more than 150,000 CAPS Fools considers its high-star stocks the most likely to outperform the market.
Written in the (five) stars?
For example, 92% of the 693 members who've rated Sequenom have a bullish opinion of the stock. Late last year, one of those Fools, wisesilverwolf, tapped the company's data-tampering troubles as a tempting opportunity:
Bad news for them in the short term, but good news for you in the long term. IF the problems get solved and new trials can prove that the product works as they claim ... then the stock will recover back to $25 and then to the moon. Maybe. Things couldn't get much worse for them could they? Low downside risk and huge upside potential ... worth a gamble.
Including yesterday's market-bucking pop, shares of the diagnostic-test maker are already up by more than 57% since that call.
The bullish lesson?
Not all scandals are created equal. By figuring out which stories Mr. Market has possibly overreacted to, you'll be one step closer to bagging a legitimate bargain. As Warren Buffett tells it, "Great investment opportunities come around when excellent companies are surrounded by unusual circumstances that cause the stock to be misappraised."
And now for the losers ...
Of course, winning isn't everything in the stock market.
Here are five of Monday'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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Pacific Sunwear of California (Nasdaq: PSUN )
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4.62%
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H&R Block
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4.55%
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TiVo
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3.71%
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CBS
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3.40%
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Trina Solar
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3.07%
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While yesterday's drop in highly rated Schlumberger (NYSE: SLB ) may have caught our community off guard, low-ranked stocks are fully expected to fall hard.
Did CAPS call the fall?
In early 2008, for instance, CAPS member turbulenceglider pointed out the clouds over Pacific Sunwear: "Their finances don't look good. They are in the red, not producing earnings for their shareholders, and if the economy is slowing, most consumer discretionary sectors will probably suffer even more."
Including yesterday's drop, shares of the teen-apparel retailer are down by more than 62% since that warning.
The bearish takeaway?
Don't be swayed by Wall Street's short-termism. As long as a company's fundamentals continue to frighten you, it's best to stick to your long-term thesis and not become too affected by daily swings of sentiment. As value legend 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 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!
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