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, 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 the biggest gainers Friday among the stocks with a top rating of five stars. Also, I've included a possible explanation -- where I could find one, of course -- for each move.

So, 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 unless you were able predict the pop beforehand, what does it matter?    

Through a consensus of more than 65,000 investors 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, GigaMedia, a Taipei-based online gaming company, has maintained a five-star rating for the past five months. Of course, the stock is a Motley Fool Global Gains selection, so our community may be a tad partial, but 25% returns on equity, double-digit revenue growth, and 190% compounded earnings growth over the past couple of years don't exactly hurt its case, either.

Numbers like that tend to come at a steep price, but only a month ago, GigaMedia was being labeled as a bona fide bargain in our community. On Aug. 9, CAPS All-Star DeiterF15 wrote this:

"The recent pullback has finally brought this Asian Tiger back into my buy range. Their excellent management, coupled with the Asian love of technology (that is far more pervasive than here in the U.S.), combine to make this one of my core holdings."

Because of the market's general malaise, GigaMedia was down 36% from its 52-week highs and was trading at a tantalizing PEG of 0.40 at the time. The stock has more than bounced back, returning 47% in just one month.

The lesson? Always maintain a watch list of exceptional, high-growth companies that you'd love to own. But be disciplined enough to buy them at your price -- preferably, a dirt-cheap one. You'll miss a lot of "runaway" stock trains this way, but the ones you do happen to catch will end up in a much safer ride.  

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 CAPS investors 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 better chance of averting portfolio disaster in the future.   

Take, for instance, this Krispy Kreme Doughnuts underperform pitch found in CAPS:

KKD belongs in the $5 or $6 range, at least for the rest of this year. The recent rise to the $10 and $11 range is unsustainable. I see a continued slow drop for the next several months to the previously mentioned prices. From there, I will get out and put KKD on my watch list with the prospect of going long at some point. . . . They do make good [doughnuts], however!

Krispy Kreme is down a depressing 61% since CAPS All-Star MrGray35 made that call last March, trading eerily close to his forecasted price target. Much of the stock's rise in the latter half of 2006 was caused by optimism regarding a possible turnaround at the company, but over the past six months, Mr. Market has grown ever skeptical of the comeback story. Krispy Kreme's Q3 loss of $27 million just seems to have reinforced that belief.

Krispy Kreme's doughy downtrend reminds us that a well-known brand, scrumptious product, and easy-to-understand business -- though they're nice things to look for -- simply aren't enough to make a good investment. And they sure can't guarantee a turnaround, either. 

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. It's absolutely free -- and a lot of fun!