Thursday's Biggest Stock Stars

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

Without further ado:

There's a simple reason why I selected the largest five-star gainers, as opposed to other big-name winners making noise on Thursday, like mortgage cousins Freddie Mac (NYSE:FRE) and Fannie Mae (NYSE:FNM). Stocks go up all the time, but unless you were able to predict the pop, what does it matter?   

Our community of more than 79,000 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, ever since top CAPS player luvb2b mentioned Evolution Petroleum as one of his favorite stocks, the Houston-based oil and gas company has maintained a perfect five-star rating. So far, each of the 28 CAPS All-Stars who've rated the stock like it to outperform.

This bull pitch -- by luvb2b himself -- highlights Evolution's intriguing prospects:

This company has a bunch of cash and nice properties, but the real gem here is [their] interest in the Delhi field.

The Delhi field [is] a CO2 recovery project that will be run by Denbury. Company estimates indicate that EPM's share of this field is 10-15 million barrels of oil. My own estimates indicate the royalty stream here could be worth several hundred million dollars.

Stock has a legitimate chance to triple as the field is brought online, if oil prices stay north of $75.

Evolution Petroleum is up a sweet 22% since that call in early November.

The bullish takeaway? Always be on the hunt for hidden assets. Sometimes, Wall Street fails to discount the massive potential buried in a company's properties, which can add some attractive "optionality" to the valuation. To be sure, we still have to wait and see if luvb2b's thesis plays out as expected, but at the very least, Mr. Market seems to be pricing in the Delhi project's promise a little higher.  

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

Here are Thursday'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 LoopNet (NASDAQ:LOOP) 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 Visteon bear call -- by CAPS player moondog17 -- in September 2006:

Difficult position for this company to be in. Subservient to Ford (NYSE:F) (Visteon's largest customer by far), this company is caught between a rock and a hard place. Sure, they do sell some manufactured products to outside customers, but not enough to fill the pipeline to quell the burn of cash.

The Michigan-based auto supplier is down a depressing 57% since that pitch, with yesterday's drop coming as the result of a weak durable goods report from the Commerce Department.  

The bearish lesson? Always take a long hard look at a company's customers. As we've mentioned before, a highly concentrated revenue base often leads to big trouble once those customers start to experience their own downturn. Just as it's foolish to tie your own fortune to just one stock, it's also unwise to invest in a company that ties most of its business to just one customer.

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, above all else, 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! 

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. LoopNet is a Rule Breakers and Motley Fool Hidden Gems pick. Fannie Mae is a former Inside Value recommendation. The Fool's disclosure policy is always the big winner.