Friday's Biggest Stock Stars

Hey there, Fools. I've summoned our Motley Fool CAPS community once again to highlight Friday's biggest gainers among the stocks with a top 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 during Friday's shortened session -- such as Circuit City (NYSE:CC) and JPMorgan Chase (NYSE:JPM) -- 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 75,000 CAPS Fools considers its five-star stocks the most likely to outperform the market.  

Written in the (five) stars?
Motley Fool Rule Breakers selection Huaneng Power, for example, has maintained a five-star rating for more than six months straight. In fact, the Chinese thermal power plant operator has regularly been rated as one of the top Asian stocks in CAPS.

This bull pitch -- by CAPS player Bombastrus back in October 2006 -- gives us some quick insight into our community's thought process:

China is energy hungry and HNP is one of the big players. I picked this up at $18.00 initially. This has been stalled at the current price range for two years but market forces will move it up as will a re-valuation of the Yuan. It also pays nice dividends so you can afford to wait.

Huaneng Power is up 42% since that call (on top of the stock's already tasty dividend yield).   

The bullish takeaway? Look for stocks that stack the odds in your favor. There are many ways to beat the market, but when you find a company that owns huge scale advantages, stands to benefit from the world's fastest-growing economy, offers a juicy dividend yield (suggesting that it's cheap), and provides a way to diversify out of U.S. dollars, that's a pretty sweet combination. As long as you consistently take "bets" loaded with market-thumping characteristics, you're almost certain to do well over the long run.        

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

Here are Friday's biggest one-star decliners:   

One-star stocks inspire the least confidence from our CAPS players. So while Friday's drop in five-star stock Webzen (WZEN) may have caught our community off-guard, one-star stocks are fully expected to fall -- and fall hard.

Did CAPS call the fall?
Take, for instance, this bear pitch on Telkonet.. The team over at CAPS recently called it the absolute worst stock in the world:

Yes they have sales, but they don't make any money on either a U.S. GAAP net income or cash flow basis. They are even having problems keeping in compliance w/ AMEX rules on the # of independent directors. If this company has any future, it is being a division of a larger company, or as part of a portfolio of private equity holdings; however, my guess is that neither of the latter wanted them, so they went public.

The Maryland-based broadband networking provider is down 25% since Gtrinvestor made that call just three weeks ago, and is off 55% over the last year. In fact, TKO has fallen so far that it no longer meets the $100 million CAPS threshold for ratable stocks.

The bearish lesson? Always follow the cash flow. All the sales growth in the world is worthless unless it translates into real economic profits within a reasonable period of time. And if a cash-burning company is having compliance issues to boot, it probably won't be long before shareholders get, er, TKO'd themselves. 

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