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

Without further ado:


Yesterday's % Gain

Ceragon Networks (NASDAQ:CRNT)


Sigma Designs


Quality Systems (NASDAQ:QSII)


Dow Chemical (NYSE:DOW)


Corning (NYSE:GLW)


There's a reason why I selected notable five-star gainers, as opposed to other big-name winners making noise on Monday. Stocks go up all the time, but unless you were able to predict the pop, what does it matter?  

Our community of more than 115,000 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: Since its inception in 2006, five-star stocks are beating the market by 12 points, annualized.

Written in the (five) stars?
For example, out of the 746 CAPS All-Stars who've rated the medical records software provider Quality Systems, an overwhelming 97% have a bullish opinion.

Three months ago, CAPS All-Star TMFRedwood explained why Quality could be had on the cheap:

I think Quality Systems might be coming out of its 2 1/2-year funk. You'll notice the share price was stagnant over that period. That's because growth slowed from the torrid pace of 2003-2005. But QSII's biggest division, NextGen, grew 29% in the last quarter. ... If 20 % revenue growth is sustainable, the stock is a bargain.

Consistent with that call, shares of Quality Systems surged for the second straight trading day after posting better-than-expected earnings late Thursday, fueled by 34% revenue growth at its NextGen division.

The bullish lesson?
Growth is great ... especially when it's cheap. Oftentimes, Wall Street gets tired of a company whose growth has cooled and fails to fully discount the potential it still has left in the tank. When that happens, Fools stand to benefit from the underlying earnings growth and from an expanding multiple when Mr. Market decides to pay up, once again, for those profits.

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

Here are five of Monday's biggest one-star decliners:  


Yesterday's % Loss

China Natural Resources


Fannie Mae (NYSE:FNM)


Vonage Holdings


Freddie Mac (NYSE:FRE)


Circuit City (NYSE:CC)


One-star stocks inspire the least confidence from our CAPS members, and for pretty good reason: Since CAPS started, one-star stocks have dropped an average of 11.4%, annualized.

Did CAPS call the fall?
In late February, for instance, CAPS member wraithlite was already expressing some bearish beliefs about Fannie Mae:

This company is making bad bets on interest rate derivatives on top of it's mortgage woes, it's poorly capitalized and poised to take on more risk into a deteriorating market and it's default rate is rising. ... I also expect more dilution of shares in repeated attempts to raise capital throughout the year.

In line with that bear call, shares of the mortgage giant fell yet again yesterday after a Wall Street analyst downgraded the stock, citing a likely stock issuance as the main reason for limited upside.  

The bearish takeaway?
There's no such thing as a free lunch. As CAPS' wraithlite understands, when a company raises capital to stay afloat, it doesn't necessarily mean that current shareholders stand to benefit. Unless you're truly able to discount the massive dilution effects that are certain to arise from a new issuance, buying into stocks like Fannie and Freddie is purely speculation.

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!

Quality Systems is a Stock Advisor choice. Ceragon Networks is a Motley Fool Hidden Gems recommendation. Sigma Designs is a Motley Fool Hidden Gems Pay Dirt and a Rule Breakers pick. Dow Chemical is an Income Investor selection. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. The Fool's disclosure policy is always the big winner.