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:

There's a reason I selected those notable gainers, as opposed to other winners making noise on Tuesday, such as low-rated FuelCell Energy. 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, 99% of the 119 All-Star members who've rated Sierra Wireless have a bullish opinion of the stock. This past summer, one of those top Fools, CaptBS, helped our community connect with the wireless modem maker. Here's an excerpt:

In spite of the recession, Sierra's balance sheet is in excellent condition, with little debt, ample cash on hand, and strong operating margins. With credit markets still tight, you'd expect to pay a premium for a company in this position, yet their P/E ratio is only around 7.6. ... [T]he rapid expansion of mobile computing should provide increasingly strong revenues for years to come.

Including yesterday's market-bucking pop, shares of Sierra have doubled since that call.

The bullish lesson?
Learn to be long-term greedy when others are short-term fearful. Going against the herd is never easy, but if you truly believe in a company's long-run potential, major downturns can offer the very best buying opportunities. As Warren Buffett reminds us, "Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices."

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:  

While yesterday's plunge in five-star stock Chesapeake Energy (NYSE:CHK) may have caught our community off guard, low-ranked stocks are fully expected to fall hard.

Did CAPS call the fall?
Only two weeks ago, for instance, CAPS member 00101 listed several reasons to jump off Pier 1:

Downthumb. Negative cash flow. Negative sales growth. Selling off assets ... Good balance sheet now. But have to prove their profit growth. Difficult to gauge quarterly report. Accounting tricks ... all legal but obfuscates.

After yesterday's drop, 00101 is off to a strong start with that underperform call.

The bearish takeaway?
Always follow the cash flow. Investing, after all, is about laying out money today in order to receive more of it in return tomorrow. As CAPS' 00101 understands, if a business habitually burns through cash, while having dim prospects for future sales relief, chances are you won't see a return of your capital, much less a return on your capital.

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!