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:


Yesterday's % Gain

Natural Gas Services Group (AMEX: NGS)


Brigham Exploration (Nasdaq: BEXP)






Petro Brasileiro (NYSE: PBR)


There's a simple reason why I selected the largest five-star gainers, as opposed to other big-name winners making noise on Monday, like the coveted one-star retailer Circuit City (NYSE: CC). Stocks go up all the time, but unless you were able to predict the pop, what does it matter?

Our community of more than 96,000 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 its first year, top-rated stocks returned roughly 28%.

Written in the (five) stars?
For example, all 117 CAPS All-Stars who've rated Natural Gas Services so far have a bullish opinion. On the strength of that top-notch support, the Texas-based provider of natural gas equipment has kept a five-star rating for five months straight.

In December of 2007, CAPS All-Star ddberg explained why Natural Gas seemed like a natural selection:

Pops up on an aggressive screen I run that looks for small and mid cap stocks with profit margins, revenue growth and EPS growth all in the 15%-50% range, with little-to-no debt and trading at a very low multiple relative to expected growth rates. Additionally, I like companies that service the energy sector but are less correlated with the fluctuation of energy prices (in this case natural gas) and NGS appears to be a very strong performer.

Natural Gas Services is up an impressive 51% since that call.

The bullish takeaway?
Learn how to build your own screen machine. As long as your parameters are well-defined, rooted in logical reasoning, and, most importantly, proven to outperform, "mechanical investing" can be a powerful way to pick stocks. After all, even the great Benjamin Graham used his own special sauce of a screen to single out bargains.

And now for the losers ...
Of course, winning isn't everything in the stock market. Here are Monday's biggest one-star decliners:


Yesterday's % Loss

FirstFed Financial (NYSE: FED)


Valence Technology


Advanced Battery Technologies


Downey Financial (NYSE: DSL)




One-star stocks inspire the least confidence from our CAPS players. So although yesterday's drop in five-star stock Dolby Laboratories (NYSE: DLB) may have caught our community off-guard, one-star stocks are fully expected to fall hard. In the first year, CAPS' lowest-rated stocks dropped an average of 16.6%.

Did CAPS call the fall?
Back in October 2006, for instance, CAPS All-Star locosuerte brought the dangers of FirstFed Financial to our community's attention:

FED is highly exposed to ARM mortgages (including neg-am) in the volatile Southern California housing market. Any combination of house price declines and interest rate hikes will put negative earnings pressure on the stock. FED is already reporting as profit earned, but not yet paid, interest from negative amortization loans.

Not surprisingly, the California-based savings and loans company is down a depressing 71% since that call.

The bearish lesson?
Unless you're able to quantify a stock's downside within a reasonable degree of confidence, it's always best to take a pass. One of the biggest mistakes investors make is failing to realize the true magnitude of a company's risk exposure, and buying simply because the stock is "due" for a bounce. As Warren Buffett put it, when asked how investors would ever know whether the portfolios of big financial institutions are safe: "They can't, they can't."

The final Foolish move
Investors often focus strictly on stock price movements 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. Dolby is a Motley Fool Stock Advisor pick. Hardinge is a Hidden Gems Pay Dirt recommendation. Petrobras is an Income Investor choice. The Fool's disclosure policy is always the big winner.