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 stock Palm (NASDAQ:PALM). Stocks go up all the time, but unless you were able to predict the pop, what does it matter?  

Our community of more than 125,000 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 after its inception in late 2006, five-star stocks beat the market by 12 points, annualized.

Written in the (five) stars?
For example, 95% of the 232 All-Stars who've rated Chicago Bridge have a bullish opinion of the stock. Two months ago, one of those members, narf029, explained why the engineering and construction company looked bound to bounce back:

Chicago Bridge and Iron has a very low P/E for the forward 12 months, on top of a very high projected growth rate. This stock has been incredibly unproductive for the past year, which leads to it being battered down and a great current value. I love it for the next year, and we'll see where things go after that.

Shares of Chicago Bridge are up 25% since that call.

The bullish lesson?
Always be on the hunt for stocks priced for imperfection. It's virtually impossible to call "bottom" on a stock, but if you're confident that the risks are already baked into the price, there's a good chance your investment will turn out well. As legendary value investor Sir John Templeton famously said, "The time of maximum pessimism is the best time to buy."

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 plunge in highly rated American Oriental Bioengineering (NYSE:AOB) may have caught our community off guard, one-star stocks are fully expected to fall hard: Over the 20 months after CAPS started, one-star stocks dropped an average of 11.4%, annualized.

Did CAPS call the fall?
In late October, for instance, CAPS All-Star RXDOC73 shared these bearish musings about Zale:

High priced merchandise in this time of financial hardships and job layoffs will certainly keep shoppers away from this retailer. Their black Friday will probably remain red and continue into 09.

Shares of the jewelry retailer are already down 85% since that call. In fact, yesterday's drop came after the company reported a 22% same-store sales drop in December -- consistent with RXDOC73's warning.

The bearish takeaway?
Get to know your environment. Different economic conditions affect different businesses in different ways, so make sure you're aware of how sensitive your own portfolio is to the current situation. When your stocks are flying, it's easy to become complacent as an investor, but that's exactly when you need to make sure those gains are sustainable going forward.

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!

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