Tuesday's Biggest Stock Stars

Hey there, Fools. I've summoned our Motley Fool CAPS community once again to highlight yesterday's biggest gainers among the stocks with a top rating of five stars.

Without further ado:

Company

Yesterday's Gain

Amedisys (Nasdaq: AMED  )

18.42%

Radiant Systems

12.76%

Atheros Communications (Nasdaq: ATHR  )

12.40%

Exactech

9.93%

China Fire & Security (Nasdaq: CFSG  )

9.87%

The reason I selected the largest five-star gainers, as opposed to other big-name winners making noise on Tuesday -- like Under Armour (NYSE: UA  ) and Saks -- is simple: Stocks go up all the time, but unless you were able predict the pop, what does it matter?    

Our community of more than 72,000 Fools in CAPS considers its five-star stocks the most likely to outperform the market. By reverse-engineering the arguments our CAPS participants have made for these picks, we improve our odds of finding the next big winner.  

Written in the (five) stars?
For example, out of the 317 CAPS players who've weighed in on Amedisys, an overwhelming 314 of them are bulls. Fueled by that Foolish support, the Louisiana-based home health-care provider has kept a perfect five-star rating for the past five months straight.

This outperform pitch -- written by fellow Fool and CAPS All-Star TMFIphone back in early July -- gives us a peek into our community's thinking:  

-home healthcare spending is on the rise and is the fastest growing segment in the industry
-make[s] acquisitions through free cash flow only in order to expand throughout the United States
-zero debt (except for lease obligations)
-91% of revenue is funded by Medicare (i.e. the government) and Medicare actuaries expect their home healthcare spending to increase from $16.5 billion in 2006 to $27.3 billion in 2010
-nearly all recent inside transactions are buys

Amedisys has returned 14% since the call, and 45% year over year. Of course, a fair share of those gains came just yesterday, after management reported 91% growth in net income and issued a strong outlook for 2008.  

The bullish takeaway? Investing is all about stacking the odds in your favor. Finding a company that stands to benefit from two major supertrends -- the aging population and increased government spending -- is a good start. But when the company also has solid fundamentals and strong insider buying -- to confirm an already bullish belief -- I'd say the chances of losing that bet are pretty slim.

A little love for the losers ...
Of course, winning isn't everything in the stock market.

Here are yesterday's biggest one-star decliners:   

Company

Yesterday's Loss

XM Satellite Radio (Nasdaq: XMSR  )

11.07%

Protalix BioTherapeutics

10.83%

Arcadia Resources (AMEX: KAD  )

9.40%

Novavax

9.04%

Biolase Technology

7.25%

One-star stocks inspire the least confidence from our CAPS players. So while Tuesday's big drops in Pitney Bowes (NYSE: PBI  ) and Volcom may have caught shareholders off-guard, our community fully expects one-star stocks to fall -- and fall hard.

Did CAPS call the fall?
Take, for instance, this Arcadia Resources underperform pitch by CAPS All-Star lowellfield in late February:

Small medical staffing and device company. Growing aggressively through acquisition, but still unprofitable and getting into lower-margin businesses. High debt. Terrible cash flow because they only recently started selling products and aren't good at billing insurers and Medicare, so they're getting stiffed a lot.

Arcadia, which also happens to provide home health-care services, is down 36% since that call, and off 58% year over year.

The bearish lesson? Despite being in the same industry, the fortunes of Amedisys and Arcadia shareholders have gone in vastly different directions over the past year. Both are indeed expanding rapidly, but there's one major difference: Amedisys finances growth from its own "organic" cash flow, while Arcadia -- which consistently posts operating losses -- funds it through massive debt. For now, at least, Amedisys has clearly proved to be the superior creator of shareholder wealth.

The final Foolish move
Investors often focus strictly on stock price movements (or the results), 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!


Read/Post Comments (0) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 539488, ~/Articles/ArticleHandler.aspx, 11/23/2014 9:47:51 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement