Wednesday's Biggest Stock Stars

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

Without further ado:

The reason I selected the largest five-star gainers, as opposed to other big-name winners making noise on Wednesday -- such as solar stocks Canadian Solar (NASDAQ:CSIQ) and Solarfun (NASDAQ:SOLF) -- is simple: Stocks go up all the time, but unless you were able to predict the pop, what does it matter?    

Our community of more than 74,000 Fools in CAPS considers its five-star stocks the most likely to outperform the market.  

Written in the (five) stars?
For example, Bolt Technology, a developer of seismic energy sources for oil and gas exploration, has had a whopping 196 CAPS All-Stars call "outperform" on its stock, while just six have been bears.

This bull pitch -- by CAPS All-Star FOOLBEFREE in late February -- gives us some insight into our community's reasoning:

[The company] sells air guns and other seismic equipment used for exploring deep oceans for oil and gas deposits. Oil exploration in deep oceans will increase in the future. In Sep. 2006, Chevron (NYSE:CVX) found a huge oil well in the deep waters of the Gulf of Mexico. With 70% of the Earth's surface covered by water, experts figure that's where most future discoveries will be made.

Known oil and gas reserves shrank and spending in exploration is going up.

Bolt Technology is up 49% since that call, and has returned a monstrous 108% in the past 12 months.

The bullish takeaway? Make a conscious effort to stay on top of day-to-day business developments. With enough good reasoning, it's certainly possible to pick out companies that will benefit from the bits of news you read and hear about. Of course, it won't happen every day, but all it really takes is a few key insights to hit it big.

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

Here are Tuesday's biggest one-star decliners:   

One-star stocks inspire the least confidence from our CAPS players. So while Wednesday's drop in five-star stock KHD Humboldt Wedag (NYSE:KHD) may have caught our community off guard, Fools fully expect one-star stocks to fall -- and fall hard.

Did CAPS call the fall?
Take, for instance, this excerpt from a Basin Water bear pitch by CAPS All-Star rd80 back in late July:

In the 14 May 07 10Q, the company provided a table breaking out revenues by large system, standard system and contract operations. In that quarter, large systems had gross margins of -45%, standard systems +19%, and contract ops -11%. In all three cases gross margins were lower than in 2006. ...

Basin Water's systems and technology may be great stuff, but to be a decent investment there needs to be a reasonable expectation of profitability. To date, they haven't shown how the company is going to turn a profit.

The California-based producer of groundwater treatment systems is off 26% since that call. In fact, yesterday's massive price drop came after the company reported a worse-than-expected third-quarter loss of $9.9 million -- consistent with rd80's pessimistic outlook.

The bearish lesson? Investing in a wonderful product doesn't always translate into wonderful shareholder returns. Too often, investors are lured by a product's awesome promise, without considering its real economic feasibility. At the end of the day, investing is a game of odds, and taking a chance on a cash-bleeding, continuously unprofitable concern is about the worst bet you can make.   

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, tens of 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 and start participating. It's absolutely free -- and a lot of fun!