Monday's Biggest Stock Stars

We at the Fool usually ignore day-to-day price gyrations. 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 suggest.       

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 Friday's biggest gainers among stocks with CAPS' top five-star rating. I've also included a possible explanation -- where I could find one, of course -- for each move:

Did CAPS predict the pop?
The reason I selected the biggest five-star gainers, as opposed to the market's biggest overall winners, or even some of the most actively traded stocks -- such as Apple (NASDAQ:AAPL) and General Motors (NYSE:GM) -- 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, EMC, a Massachusetts-based data-storage specialist, has a whopping 1,329 CAPS players bullish about its prospects.

This outperform pitch -- found on EMC's CAPS page -- gives us part of the reason why:

EMC will have some digestion blues considering the number of companies that it has acquired and [is] acquiring. However, those are best of breed acquisitions -- top security (RSA), virtualization (VMware) and the list goes on. There's huge upside potential if it doesn't throw up ... HUGE UPSIDE potential.

Since CAPS All-Star Calegro made that call back in March, EMC is up an impressive 41%. In fact, yesterday's pop came after a few analysts recommended EMC as a cheaper alternative to buying VMware (NYSE:VMW), its 85%-owned virtualization subsidiary.

The bullish takeaway? When valuing a company, be sure to always check the public-market value of its subsidiaries -- assuming that they're publicly traded, of course. Oftentimes, Mr. Market doesn't fully acknowledge the percentage of a pop attributable to the parent company, and it ends up selling the parent at a huge discount.    

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

Here are yesterday's biggest one-star decliners:   

Did CAPS call the fall?
One-star stocks inspire the least confidence from our CAPS community. By investigating a few of the bearish arguments CAPS players have made for these losers, we should have a better chance of averting portfolio disaster in the future.   

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

AMR has terrible management and its margins will be hurt by higher energy prices. Its fleet of aircraft is old and has terrible fuel efficiency. Let's not forget legacy costs.

The Fort Worth, Texas-based airline is down 28% since CAPS All-Star UncommonSense penned that pitch last July. As a matter of fact, yesterday's 14% drop came after several analysts slashed their third-quarter profit estimates -- echoing much of CAPS' bearish sentiment toward AMR and the airline industry as a whole.

The Foolish lesson? If you can help it, try limiting your investment search to industries that have historically created value -- something that the airline business hasn't exactly done. As Warren Buffett once wrote, "For investors, it would have been far better if Orville had failed to get off the ground at Kitty Hawk."

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!