Thursday'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 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 yesterday's biggest gainers 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 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, Posco, a South Korean-based steel producer, has a whopping 136 CAPS All-Star bulls in its corner, and it still doesn't have a single All-Star detractor. The stock was chosen for our Motley Fool Income Investor subscribers back in 2005 (and 242% ago), but many of its bullish arguments have held long after. Throughout Posco's CAPS page, you'll find pitches that focus on its rare combination of a yummy dividend yield and awesome capital appreciation characteristics.  

Here's one from CAPS player noahsnyder, written all the way back in September 2006:

This South Korean steel giant is set to outpace the market for the next five years or more. They've had consistent dramatic growth over the last decade and now look to expand their market substantially outside South Korea.... Posco has a good dividend record and no recent earning deficits. Their asset to liability ratio is excellent and they have relatively little long-term debt. This stock has a wide margin of safety and looks to me to have substantial room for growth over the next several years.

PKX is up 167% since that call was made.

The Foolish takeaway? Massive multibagger returns can be had in more ways than one. Dividend-paying stocks are often associated with a lower-risk, lower-return investment profile, but Posco clearly shows us what can happen if you find an income-payer with exceptionally strong financials and huge growth opportunities, to boot.

Low-risk, high-reward: Nothing is sweeter.    

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

Here are yesterday'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 better chance of averting portfolio disaster in the future.  

Take, for instance, this Cott underperform pitch found in CAPS:

If I want a Coke, I can get one for less than a buck. If I want to be cheap, I can get the Wal-Mart brand.

The Toronto-based beverage company is down 27% since CAPS All-Star LattePup penned that pitch in January. Latte's pitch might be short, but the investment lesson we can extract from it is extremely important.

At its simplest, businesses gain a competitive advantage either by selling at the lowest price, or by differentiating their product in consumers' minds. Excess returns on capital can be generated on either side of the spectrum, but hardly ever by firms that are stuck in the middle.

Cott's fall reminds us Fools to consciously seek out firms with a clear, identifiable, and profitable competitive advantage. If our portfolio is littered with companies caught between a low-cost rock and a premium hard place, our returns will likely get squished in the process.

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 on Motley Fool CAPS, thousands of investors are 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!