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 one-star homebuilders Lennar (NYSE: LEN) and Toll Brothers. Stocks go up all the time, but unless you were able to predict the pop, what does it matter.   

Our community of more than 82,000 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, of the 311 CAPS players who've rated Trimble Navigation so far, 97% are bullish. On the strength of that strong support, the California-based maker of navigation and surveying devices has consistently held a perfect CAPS rating for the last several months.      

This outperform pitch by CAPS All-Star joel415 back in early August contrasted Trimble with another Foolish GPS favorite:  

Instead of concentrating on the somewhat unreliable trends of the electronics industry (like [Garmin (Nasdaq: GRMN)]), Trimble has turned its GPS IP and products into a solutions company. It offers total solutions to farmers and the construction industry ... Trimble has identified a few other vertical areas to work in too. ... It may not grow as fast as GRMN, but I think it has a far higher (wider) moat.

Trimble Navigation is up 23% since that call. Of course, virtually all of those gains came yesterday after the company upped its fourth-quarter profit outlook, announced the acquisition of a Montreal-based digital mapping company, and authorized a $250 million stock buyback.

The bullish takeaway? Always seek a competitive edge. Regardless of how fast a company grows, it's the competitive advantage that will determine how long it can last. As Warren Buffett says, "The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage."

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 huge drop in four-star stock Flotek Industries (NYSE: FTK) 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 Security Capital Assurance bear call by CAPS player gea1968 less than two weeks ago:

I do think that subprime debt, bundled into CDO's, SIV's, and so on, will continue to be a major problem. But I do not believe that every financial services company is a hopeless case. The larger ones may be "too big to fail" and get bailouts. ... SCA lives at ground zero of the subprime crisis. Goodbye, SCA ...

Consistent with gea1968's farewell to SCA, shares of the Bermuda-based bond insurer -- along with many of its competitors -- plunged yesterday after Fitch Ratings downgraded its financial strength rating to "A" from "AAA". Typically, bond insurers need a triple-A rating to generate more business, which is why Mr. Market's punishment was so severe. 

The bearish lesson? Learn to pick your spots carefully. Trying to capitalize on distressed industries can be a profitable venture, but the risks are that much greater as well. Unless you can honestly conclude that a company is healthy enough to survive even under a worst-case scenario -- and without the help of a massive bailout -- then it's best to stay far, far away.

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!