Tuesday's Biggest Stock Stars

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

There's a reason why I selected notable five-star gainers, as opposed to other big-name winners making noise on Tuesday, like low-rated mortgage giants Freddie Mac (NYSE:FRE) and Fannie Mae. 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, 97% of the 570 CAPS members who've rated Siliconware Precision have a bullish opinion of the stock. In early August, one of those members, rock7839, explained why the Taiwanese semiconductor service company seemed like a steal:

May see a slowdown due to economy but already priced into the stock with a P/E of 8. They pay a great dividend and more importantly can afford to continue to pay a healthy dividend. Less than 10% held by Institutions. You don't see many companies in the chip sector trading at 1.8X book value with no intangibles/goodwill on the balance sheet. Great Value play.

With the help of yesterday's 33% surge, Silicon Precision is beating the market since that call.

The bullish lesson?
Boring dividend payers don't always mean sleepy returns. In fact, buying into financially strong, well-positioned, and most importantly, bargain-priced dividend stocks is one of the more reliable ways to trounce the market ... with a lot less risk. In today's manic environment, a little dividend stability can go a long way toward protecting your portfolio. 

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

While yesterday's plunge in five-star stock Ceradyne (NASDAQ:CRDN) 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 September 2007, for instance, CAPS All-Star zzlangerhans was already raising a few red flags on Rigel Pharmaceuticals:

They have only two products in clinical trials, and nothing in phase III. R788 is actually promising, so I could get burned with positive phase II results. However, for the long term this stock seems simply overpriced for its pipeline. Any bad news will draw attention and result in a major correction.

Just as zzlangerhans had warned, shares of Rigel tanked yesterday, after the San Francisco-based drugmaker presented disappointing results -- a modest blood pressure increase and a geographic inconsistency -- from a phase IIa trial for its arthritis treatment, R788.

The bearish takeaway?
Always invest with a healthy dose of skepticism. There are certainly companies that have the "next big thing" in their pipeline, but unless you have exceptional insight in identifying them, there's really no need to take such long-shot bets. As CAPS' zzlangerhans understands, any one- (or two-) trick pony can be bid up on enthusiasm, but if the expectations aren't rooted in reality, it's just a matter of time before your rocket stock "turns torpedo."

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!