Thursday's Biggest Winners and Losers

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

Without further ado:

There's a reason why I selected notable five-star gainers, as opposed to other big-name winners making noise on Thursday. 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 proved 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, an overwhelming 97% of the 436 CAPS All-Stars who've rated Motley Fool Global Gains pick Allied Irish Banks have a bullish opinion of the stock.

Last month, CAPS All-Star wuff3t helped our community keep their Irish eyes on the company's long-term prize:

Very healthy growth, diversified markets, and one of a limited number of players in Irish banking. Despite the utter panic that seems to be gripping investors at the moment not every bank in the world will fail, and those that are healthier now will emerge even stronger (greater market share and fewer competitors) when the dust has settled.

Shares of Allied Irish Banks are up a nice 12% since that call.

The bullish lesson?
Sometimes we can get away with investing in second-rate businesses, but when times are tough, it's crucial to stick only with the best. The key to Dumpster-diving is buying best-of-breed companies that stand to benefit from an industry shakeout over the long haul, by growing market share at the expense of weaker competitors. As CAPS' wuff3t understands, when searching for value in distressed industries, "good" is almost never enough.

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

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

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 February 2007, for instance, CAPS All-Star FoolforSilver raised bearish concerns about Fortress Investment Group:

Massively overvalued hedge fund. Trading at approximately 30x earnings, which leaves little room for error. They are paid on % of assets and % of gains. When gains disappear(everyone loses every once in a while), investors bail, profits dry up, and the stock tanks. No track record to justify their price.

Not surprisingly, shares of the New York-based investment management firm are down 62% since that call.

The bearish takeaway?
Implicit in a stock's price are specific growth and risk assumptions. Therefore, it's your job as an investor to assess whether those assumptions are reasonable given the company's business model and outlook. As CAPS' FoolforSilver understands, a high P/E is tough to grow into in even the best of times, but when your business model is basically tied to a slumping stock market, the odds are that much longer.

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!