Monday's Biggest Stock Stars

Hey there, Fools. I've summoned our Motley Fool CAPS community once again to highlight Monday'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 Monday -- like financials Ambac Financial (NYSE:ABK) and MBIA  -- 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 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 392 CAPS players who've rated longtime Foolish favorite Grant Prideco, a mere five are bearish. On the strength of that support, the Texas-based drilling equipment and services provider has maintained a five-star rating for more than six months straight.

This bull pitch -- by CAPS player PebbledShore back in October 2006 -- helped bring the bargain opportunity to our community's attention:

Currently 4-STAR S&P and 5-star MF CAPS pick; dominates industry; oil services beaten down by lower crude prices; looks to sell more premium products as companies will need to dig deeper and in more extreme conditions to extract crude.

Grant Prideco has returned a whopping 60% since that call. In fact, yesterday's jump came after oilfield services giant National Oilwell Varco (NYSE:NOV) announced that it would acquire Grant Prideco for roughly $7.37 billion -- a 22% premium to Grant's closing price last Friday. 

The bullish takeaway? Always think like a business owner. All sorts of things can depress a stock's price in the short term, but the true investor is able to focus on the factors that really count over time. By buying dominant companies in attractive industries on the cheap, you give yourself plenty of "upside" opportunities -- including being bought out by the big boys -- to generate an above-average return.

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

Here are Monday's biggest one-star decliners:   

One-star stocks inspire the least confidence from our CAPS players. So while yesterday's drop in five-star stock Ingersoll-Rand (NYSE:IR) 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 Mesa Air Group underperform pitch -- by CAPS All-Star honcharella -- this past March:

In the short term this may ride the wave of airline happiness, but they are setting up to get killed in the Hawaiian market ($19 fares!!!) and tend to run the rest of their operation on a shoestring. ... All of the regional airlines are having a VERY hard time recruiting pilots and it will be interesting to see how it all plays out.

The regional carrier has fallen a stomach-churning 51% since that call. In fact, yesterday's plunge came after management was unable to estimate results for fiscal 2007, and U.S. Bankruptcy Court Judge Robert Faris rejected the company's motion for a new trial. Back in late October, Faris ordered Mesa to pay $80 million to Hawaiian Airlines for misusing confidential information in its bankruptcy proceedings.

The bearish lesson? Stay away from industries with poor long-term economics. Though there's no guarantee, by any means, that healthy businesses will be free from mischief, management teams operating in moatless, cutthroat, suboptimal operating environments are highly prone to engage in shenanigans. As Peter Lynch once said, "Go for a business that any idiot can run -- because sooner or later, any idiot probably is going to run it."

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!

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