Tuesday's Biggest Stock Stars

Hey there, Fools. I've summoned our Motley Fool CAPS community once again to highlight a few of Tuesday's biggest winners among the stocks with top ratings of four or five stars:

Company

Yesterday's Gain

A-Power Energy (Nasdaq: APWR  )

12.65%

Alcoa

8.11%

Level 3 Communications

7.91%

Caterpillar (NYSE: CAT  )

6.01%

PotashCorp

5.75%

There's a reason I selected those notable gainers as opposed to other winners making noise on Tuesday, like low-rated Yahoo! (Nasdaq: YHOO  ) : 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, 98.4% of the 257 All-Star members who've rated A-Power have a bullish opinion of the stock. In May, one of those top Fools, lotsofmojo, singled out the stock as a smart way to catch the wind:

With so many around, it is difficult to determine which solar company will survive. Seems like a good alternative might be to go with [A-Power] which is in a joint venture with [General Electric (NYSE: GE  ) ] to produce wind turbines in China. ... Decent short term potential with very good long term prospects.

Shares of the power equipment provider are already up 80% since that call. In fact, yesterday's double-digit surge came after the company landed a $90.5 million contract from Jihe Orient Wind Energy to develop a wind farm in Mongolia.

The bullish lesson?
Pay attention to small stocks that make a habit of landing big deals. As CAPS' lotsofmojo understands, just a couple of major contract wins can have a huge impact on a small business, so focus on the market leaders with massive trends working in their favor. If those tailwinds are strong enough, blockbuster deals will probably keep blowing in that company's direction.

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

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

Company

Yesterday's Loss

Citigroup (NYSE: C  )

8.85%

AIG

5.62%

Best Buy (NYSE: BBY  )

5.17%

Freddie Mac

4.21%

Crocs

3.34%

While yesterday's drops in highly rated health insurers Coventry and UnitedHealth (NYSE: UNH  ) may have caught our community off guard, low-ranked stocks are fully expected to fall hard.

Did CAPS call the fall?
Late last month, for instance, CAPS All-Star killtheump had a tough time banking on Citigroup: "Toxic assets, sand-bagging its outstanding bad loans, and an incompetent CEO are just three of the wonderful qualities this company offers investors. Years from now this business will be identified as the poster child of the economic meltdown, and its leaders lauded for their contributions to the collapse."

Shares of the banking behemoth have fallen 16% since that bear call. In fact, yesterday's drop came on reports that Citigroup is planning a multibillion-dollar stock offering to help cut the government's stake in the company.

The bearish takeaway?
Always identify a stock's dangers before they come back to haunt you. One of the most common mistakes we make as investors is using fuzzy, surface-level arguments to defend a stock, while completely ignoring its actual risk exposures. As Warren Buffett simply says, "Risk comes from not knowing what you're doing."

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! 

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Best Buy, UnitedHealth, and Coventry are Motley Fool Stock Advisor picks. Best Buy and UnitedHealth are also Inside Value selections, and the Fool owns shares of both. The Fool's disclosure policy is always the big winner.


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