Wednesday's Biggest Stock Stars

• Email
• Share
• Print

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

Without further ado:

Company	Yesterday's % Gain
Legg Mason (NYSE: LM)	11.07%
Patriot Coal	8.75%
Suntech Power (NYSE: STP)	8.12%
Precision Drilling Trust	7.69%
Oracle (Nasdaq: ORCL)	7.00%

There's a reason I selected those notable gainers, as opposed to other winners making noise on Wednesday, like low-rated casino stocks MGM Mirage (NYSE: MGM) and Las Vegas Sands: 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, 92.5% of the 400 All-Star members who've rated Legg Mason have a bullish opinion of the stock. Two months ago, one of those Fools, jimlanad, explained why the investment manager looked like a particularly wise investment:

Every time I look at my limited holdings of this stock my insides scream "buy more, buy more." At present [Legg Mason] is selling at 40% less than its book value. When the market starts to return, if it hasn't already, it will spark an accelerated groth in [Legg Mason] faster than the market itself.

Legg Mason is up 23% since that call. In fact, yesterday's double-digit pop came after a British newspaper reported that it could soon face a challenge from activist investor Nelson Peltz.

The bullish lesson?
Learn to think like a business owner, not a stock trader. Market downturns aren't always easy on the stomach, but as CAPS' jimlanad understands, they provide the rare chance to increase ownership of your companies at compelling prices. As Warren Buffett once said, "Only for short-term investors and market timers is a correction not an opportunity."

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

Here are five of Wednesday's biggest decliners with a one- or two-star rating:   

Company	Yesterday's % Loss
Sprint Nextel (NYSE: S)	3.39%
Darden Restaurants (NYSE: DRI)	3.21%
Eastman Kodak	2.64%
Centex	2.52%
CB Richard Ellis	2.29%

While yesterday's drop in highly-rated Monsanto (NYSE: MON) may have caught our community off-guard, low-ranked stocks are fully expected to fall hard.

Did CAPS call the fall?
Three weeks ago, for instance, CAPS All-Star Buckaneer couldn't quite stomach Darden's recent price run: "Strapped consumer, layoffs, higher oil and commodity prices -- has been purely a [momentum] play without ... REGARD to fundamentals."

Consistent with that skepticism, shares of the Olive Garden, Red Lobster, and LongHorn Steakhouse restaurant operator sank yesterday after management warned that fiscal 2010 traffic and sales would be worse than expected.

The bearish takeaway?
Never confuse a rebounding price for improving fundamentals. As long as a company's operating landscape continues to deteriorate, short-term, momentum-driven run-ups can only last so long. As 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, 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!