Thursday's Biggest Stock Stars

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, like one-star retailer Macy's (NYSE:M). Stocks go up all the time, but unless you were able to predict the pop, what does it matter?  

Our community of more than 120,000 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: In the first 20 months since its inception in late 2006, five-star stocks beat the market by 12 points, annualized.

Written in the (five) stars?
For example, 98% of the 2,168 CAPS members who've rated Motley Fool Stock Advisor pick VASCO Data Security have a bullish opinion of the stock.

Three weeks ago, one of those members, Rak9378, explained why the security software specialist looked safe enough to bet on:

Given VDSI's dependence on banks, this stock has obviously been battered by the mess in the financial markets. However, the fundamentals of the company remain strong. ... The authentication products offered by VDSI are widely used throughout Europe and Asia and will eventually catch on here in the US. VDSI is well positioned to capitalize on this trend.

Consistent with that pitch, shares of VASCO surged yesterday after posting impressive quarterly revenue and net income growth of 32% and 55%, respectively, despite all of the turmoil in the financial sector.

The bullish lesson?
Always make sure the (business) megatrend is your friend. For a proven way to sidestep at least some of the market's punishment, buy into businesses that stand to take advantage of massive shifts in commerce, rather than struggle against where the world is headed. In Wayne Gretzky's words, "Skate to where the puck is going, not to where it's been."

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:   

While yesterday's gut wrenching drop in highly rated Suntech Power (NYSE:STP) may have caught our community off-guard, one-star stocks are fully expected to fall hard: Over the 20 months since CAPS started, one-star stocks dropped an average of 11.4%, annualized.

Did CAPS call the fall?
In May, for instance, CAPS member mrbanks08 listed several bearish reasons to stay away from Colonial BancGroup. Here's a small sampling:

1) CNB has a significant presence in Florida and Alabama. The other 3 states have relatively little overall [impact] on the company. ...

Remember, even a stock trading at book value of assets, or below, is still predicated on the quality of the assets. In this case the bulk assets are; commercial loans and real estate in [Florida].

Just as mrbanks08 had warned, shares of the regional bank lost more than half their value yesterday, after the company reported a third-quarter loss of $71.2 million on rising mortgage-related losses and loan provisions.

The bearish takeaway?
Always beware of book value "value traps." Colonial has been selling for less than book value for quite some time, so it would've been easy to consider the stock a no-brainer bargain. Of course, as mrbanks08 correctly pointed out, deteriorating fundamentals, exposure to "bubbly" geographic regions, and the likely forced liquidation of assets made Colonial's stated book value -- along with its share price -- pretty tough to bank on.

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!