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 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 -- like AT&T (NYSE:T) -- is simple: Stocks go up all the time, but unless you were able predict the pop, what does it matter?  

Our community of more than 77,000 CAPS Fools considers its five-star stocks the most likely to outperform the market. And so far, CAPS has indeed proven its market-beating prowess: over the last year, top-rated stocks have returned roughly 28%.

Written in the (five) stars?
For example, out of the 263 CAPS All-Stars who've rated Manitowoc, not a single one is bearish. Fueled by that Foolish fanfare, the Wisconsin-based provider of crane, food service, and marine equipment has maintained a five-star rating for the last five months straight   

This bull pitch -- by CAPS All-Star reddingrunner last August -- offered some anecdotal evidence of the stock's massive potential:

Just back from Europe where just about each and every country seems to be claiming that their national bird is the crane -- you can look at most any skyline and see dozens. I can only imagine what Asia must look like! I think the global economic boom will keep going; if you disagree then this stock probably isn't for you.

Manitowoc is up 31% since that call, and has returned 60% over the last year. In fact, yesterday's pop came after the company raised its 2008 profit guidance above Wall Street's expectations, citing strong growth in its crane division as the primary driver -- in line with reddingrunner's take.

The bullish takeaway? It pays to believe your eyes. Finding great stocks often begins with simple observation, a little intuition, and a whole lot of Foolish common sense. As long as you conduct plenty of due diligence before you make the buy, pulling investment leads from your own surroundings can be a profitable habit.

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

Here are Wednesday's biggest one-star decliners:  

One-star stocks inspire the least confidence from our CAPS players. So while yesterday's drop in four-star stock Nuance Communications (NASDAQ:NUAN) may have caught our community off guard, one-star stocks are fully expected to fall hard. Over the last year, CAPS' lowest-rated stocks dropped an average of 16.6%.

Did CAPS call the fall?
Take, for instance, this US Airways underperform pitch by CAPS All-Star Cubsin2020 back in early May:

The cash flow is strong but I can't see this business differentiating itself from its increasing low cost competition. This stock and sector is a major gas hike away from getting spanked by a hedge fund, whether it's warranted or not.

It may benefit from strong cash flow with summer travel, long term is questionable.

The Arizona-based airline is down 58% since that call, and has shed 74% over the last year. In fact, yesterday's drop was due to a rise in oil prices, coupled with an analyst's bearish opinion on the entire airline sector -- similar to what Cubsin2020 had warned about.

The bearish lesson? Beware of airline stocks! Unless you have the utmost confidence that a specific airline can indeed sustain superior returns on capital -- be it through differentiation or a low-cost structure -- the cutthroat nature of the industry makes it extremely difficult to make a decent long-term buck. In Warren Buffett's words, "You've got huge fixed costs, you've got strong labor unions, and you've got commodity pricing. That is not a great recipe for success."

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 stocks (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!