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 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 stock XL Capital (NYSE:XL). 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, 92% of the 266 members who've rated Pepsi Bottling have a bullish opinion of the stock. Four days ago, one of those Fools, brightsideLP, explained why the Pepsi-Cola distributor looked particularly tasty:

Premium name with strong brand power - trading at a discount to intrinsic value.
Nothing flashy but the dividend is strong and management is above average.
Global domination is still under way for the Pepsi-Coke-Dr. Pepper companies and PBG will be a solid portfolio holding

Shares of Pepsi Bottling are already up 15% since that call. In fact, yesterday's pop came after rival bottler Coca-Cola Enterprises (NYSE:CCE) upped its profit outlook for 2008 and announced a restructuring plan.

The bullish lesson?
Building wealth doesn't always require you to chase flashy growth stocks. Like brightsideLP understands, as long as you can buy them at a significant discount, boring, well-positioned dividend payers can power your returns for years. As Warren Buffett once said, "Sound investing can make you very wealthy if you're not in too big of a hurry. And it never makes you poor, which is even better."

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 drop in five-star stock National Oilwell Varco (NYSE:NOV) 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, for instance, CAPS All-Star TMFBuck took a skeptical stance on MBIA:

Despite it's recent recovery I still think this stock has a good chance of going to zero. They have massively dillute shareholders and took on a big deal at a price that [Berkshire Hathaway] wouldn't touch. I'm not exactly sure that I would start the ticker tape parade.

Not surprisingly, shares of the embattled mortgage insurer are down 50% since that call.

The bearish takeaway?
Never confuse an improving stock price for improving fundamentals. As long as a company's underlying economics continue to deteriorate, short-term, speculation-driven run-ups can only be sustained for so long. By doing your own homework and ignoring Mr. Market's mood swings, as TMFBuck demonstrates, you give yourself a better chance of coming to a realistic view of a company's risk/reward profile.

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!

On Jan. 12, 2009, Fool co-founder David Gardner, Jeff Fischer, and their Motley Fool Pro team will accept new subscribers to their real-money portfolio service. Motley Fool Pro is investing $1 million of the Fool's own money in long and short positions in a range of securities, including common stocks, put and call options, and exchange-traded funds (ETFs). They also incorporate proprietary CAPS "community intelligence" data into their research. To learn more about Motley Fool Pro, and to receive a private invitation to join, simply enter your email address in the box below.