Tuesday's Biggest Stock Stars

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

Without further ado:

There's a simple reason I selected the largest five-star gainers, as opposed to other big-name winners making noise on Tuesday, like low-rated financials Lehman Brothers and American International Group (NYSE:AIG). Stocks go up all the time, but unless you were able to predict the pop, what does it matter?  

Our community of more than 110,000 CAPS Fools considers its five-star stocks the most likely to outperform the market. And so far, CAPS has indeed proved its market-beating prowess: Since its inception in 2006, five-star stocks are beating the market by 12%, annualized.

Written in the (five) stars?
For example, 97% of the 242 CAPS All-Stars who've rated ICICI Bank have a bullish opinion. Fueled by that Foolish backing, the India-based bank has kept a four- or five-star rating for over six months straight.

Two months ago, CAPS All-Star reddingrunner explained why the stock was a bankable bet:

I've long owned [HDFC Bank (NYSE:HDB)] in real life as I believe it has better growth prospects than [ICICI Bank] but now that both have been sliding due to inflationary/interest rate pressures this is a good dip for adding [ICICI] to my CAPS portfolio. The near-term is iffy but the long-term looks very very good indeed.

Consistent with that call, shares of ICICI Bank surged yesterday on optimism that the drop in oil prices would ease inflationary pressures and, as a result, interest rates.

The bullish lesson?
When the shares of a company you like start to slide, always try to figure out why. If Mr. Market is being too short-sighted with his appraisal, it might be a perfect time to buy a solid, wealth-building company for the long haul. As Warren Buffett once said, "Only for short-term investors and market timers is a correction not an opportunity."

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

Here are Tuesday's biggest one-star decliners:  

One-star stocks inspire the least confidence from our CAPS members. So although yesterday's drop in highly rated Marvel Entertainment (NYSE:MVL) may have caught our community off guard, one-star stocks are fully expected to fall hard. Since CAPS started, one-star stocks have dropped an average of 11.4%, annualized.

Did CAPS call the fall?
In December 2006, for instance, CAPS All-Star vittorio301 shared bearish thoughts on Midway Games:

Midway was a strong company with Mortal Kombat and ... well ... that was their ace. However, after its been used you better have more than just an ace up your sleeve to survice in this industry. And thats what they need. Something fresh and exciting instead of sticking to just once franchise.

Not surprisingly, shares of the video game publisher are down 62% since that call. In fact, yesterday's massive plunge came after the company's second-quarter loss continued the string of widening losses. According to one Wall Street analyst, Midway "continues to struggle as it lacks sufficient scale, product quality, and properly targeted titles to capitalize on the current industry profile" -- exactly as CAPS' vittorio301 had warned.

The bearish takeaway?
Always beware of "one-hit wonders." By sticking to companies with a potent pipeline, a solid track record of innovative success, and market-leading positions, not only will you decrease your chances of loss, you'll also have a better shot at those multibagger gains. As growth investing great Philip Fisher once advised, the first question to ask when searching for a superior stock is: "Does the company have products or services with sufficient market potential to make possible a sizable increase in sales for at least several years?"

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 into CAPS today and start participating. It's absolutely free and a lot of fun!