Monday's Biggest Stock Stars

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.

Without further ado:

There's a reason why I selected those notable gainers as opposed to other winners making noise on Monday, like low-rated Sallie Mae (NYSE:SLM). 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, 95% of the 160 All-Star members who've rated Arena Pharmaceuticals have a bullish opinion of the stock. Two months ago, one of those Fools, stockdoc00, brought the drug developer's sliding stock to our community's attention:

Overreaction to the relatively underwhelming results of their Phase II trial of their obesity drug Lorcaserin … While the benefit is modest, it still surpassed placebo and considering the market for a proven anti-obesity drug with little competition (most other major pharmaceuticals have dropped their attempts), [Arena] also becomes an attractive takeover target. A bit of a gamble, but a reasonable one at this price.

Arena is already up an impressive 80% since that call. In fact, yesterday's 25% pop came after the company said that lorcaserin helped patients lose and keep off a "highly significant" amount of weight in a late-stage trial, compared to a placebo.

The bullish lesson?
Train yourself to be greedy when others are fearful. As long as you've done your homework and are absolutely convinced of a company's long-term potential, a bit of angst from Mr. Market can create perfect buying opportunities. Like Warren Buffett says, "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:   

While yesterday's drop in five-star stock Allied Irish Banks may have caught our community off guard, low-ranked stocks are fully expected to fall hard.

Did CAPS call the fall?
In 2007, for instance, CAPS member xscottx was already reading the warning signs on VeriSign:

VeriSign makes 80% of its revenue from domain names. This is a monopoly that will not last forever -- once this monopoly is broken [VeriSign] is history. Additionally, their numbers are horrible.

Shares of the domain-name registry company are down 34% since that call. In fact, yesterday's plunge came after a federal appeals court on Friday reinstated a lawsuit against VeriSign alleging that it violated antitrust laws -- consistent with xscottx's warning.

The bearish takeaway?
Always identify a stock's risk exposures before they come back to haunt you. One of the most common mistakes we can make as investors is failing to see the dangerous things that lurk just around the corner. Unless you're willing to consider all of the possible ways your stock might get killed -- both in the short and the long run -- there's a good chance you'll wake up one day and get blindsided.

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!