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 I selected notable five-star gainers, as opposed to other big-name winners making noise on Thursday, like low-rated State Street (NYSE:STT). 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 since its inception in late 2006, five-star stocks beat the market by 12 points, annualized.

Written in the (five) stars?
For example, 96% of the 3,111 members who've rated UnitedHealth have a bullish opinion of the stock. Three weeks ago, one of those Fools, zephyrbilly, explained why the health insurer seemed to be in a healthy spot: "Probably the most well-positioned company for benefiting from the huge number of people entering Medicare eligibility. AARP, which knows something about this emerging audience, has bet on United for a while now, as the carrier behind their supplements, Part D and Medicare Advantage (HMO) plans."

Consistent with that call, shares of UnitedHealth surged yesterday, after the company's quarterly adjusted profit met analyst estimates, while revenue came in higher than expected.

The bullish lesson?
Let the (demographic) trends be your friend. By identifying excellent companies positioned to capitalize on powerful demographic tailwinds -- just like CAPS' zephyrbilly demonstrated -- you'll always have massive market-trouncing forces working in your portfolio's favor. As my Foolish colleague Todd Wenning wrote, "Rather than speculating on events that may or may not happen, I offer you one trend that's sure to happen -- the aging of the baby boomer generation."

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 highly rated US Bancorp (NYSE:USB) 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 member smacke01 shared these bearish thoughts on Fifth Third Bancorp:

They have a ton of half finished condo buildings in south [Florida] where I live. [Fifth Third] is dreaming thinking it will sell these nonperforming loans at small discounts. When the FDIC starts applying pressure, reality will hit [Fifth Third] real hard with the price somebody will actually pay for its nonperforming / half complete condo buildings in south [Florida]. As long as they continue to lie to themselves, the outlook will be bleak.

Not surprisingly, shares of the financial-services company are down 80% since that call. In fact, yesterday's plunge came after Fifth Third said its quarterly loss was nearly $2.2 billion on rising loan defaults -- just as smacke01 had warned.

The bearish takeaway?
Always identify a stock's risk exposures before they come back to haunt you. One of the most common mistakes we make as investors is not paying close enough attention to a given company's financial position (or what it actually owns and owes). Unless you can reasonably conclude that a company will remain intact even under the worst of scenarios, investing in deteriorating balance sheets, with huge uncertainty about future losses, just isn't worth the headaches.

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!