Friday's Biggest Stock Stars

Here at the Fool, we usually don't pay attention to day-to-day price gyrations. Instead, we prefer to track each business' intrinsic value, which, by its very nature, changes a lot less frequently than Mr. Market's wild swings would have you believe.    

But at times, some price moves are just so big that investors should at least take notice -- especially when we Fools could have seen them coming.

The big winners  
With that in mind, I've summoned our Motley Fool CAPS community to highlight Friday's biggest gainers among the stocks with a top CAPS rating of five stars. I've also included a possible explanation -- where I could find one, of course -- for each move.

Without further ado:

Did CAPS predict the pop?
The reason I selected the biggest five-star gainers, as opposed to the market's biggest overall winners, is simple: Stocks go up all the time, but it doesn't help unless you were able predict the gains beforehand.

Through a consensus of more than 60,000 Fools in CAPS, our community considers its five-star stocks the most likely to outperform the market. By reverse-engineering some of the arguments made for these picks, our odds of finding the next big winner will surely improve.

For example, Enstar Group, an investment company designed to purchase run-off (discontinued) insurance operations, has been a Foolish favorite for quite some time. The stock has maintained a five-star rating for six months straight, and was even featured by my Foolish friend Matt Koppenheffer as a Stock of the Week.

This outperform pitch -- written by All-Star SGSwede last May -- shows the importance of knowing your management team's resume:

This train is about to leave the station. Simply put, Enstar show[s] no signs of slowing down. First, [Christopher] Flowers is one of the honchos here. You might know him from Goldman Sachs fame. He's got millions in them. Secondly, they just merged (acquired) Castlewood Holdings, another EXTREMELY profitable company in the financial services industry. ... They're gobbling up some big guns, and the numbers are pretty outstanding.

The stock is up 18% since that call was made.

Now for the losers
Of course, winning isn't everything in the stock market. Stocks go down, too -- and oftentimes very, very fast.

Here are Friday's biggest one-star decliners:  

Did CAPS call the fall?
Whereas Fools believe five-star stocks will outperform, one-star stocks inspire the least confidence from our CAPS community. By investigating a few of the bearish arguments made for these losers, we should have a much better chance of averting portfolio disaster in the future.  

Take, for instance, this NIS Group underperform pitch found in CAPS:

It's a lending company where the book value per share is only 2.37 (with almost no collateral), cash flow is under 30 cents per share, and their 200-day moving average stock price has been dropping for 12 solid months. Their dividend is a paltry 1.78% (low for a lending company), and their payout ratio last year for that dividend was a full 94.45%. I don't know how much lower they can go, but I'm keeping my underperform in place until I find out.

When CAPS player rmenschel penned that call in July, the stock had already been down 23% year to date. But it has managed to drop another 27%, reminding us of how terribly tricky it is to catch a falling knife -- especially if it seems to be dull and rusty to begin with.    

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 certainly help you become a more Foolish investor.

Log in to CAPS today. It's absolutely free -- and a lot of fun!

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. The Fool has a disclosure policy.