Wednesday's Biggest Stock Stars

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

Without further ado, here they are:

There's a reason why I selected notable five-star gainers as opposed to other big-name winners making noise on Wednesday, like low-rated financials Morgan Stanley and Citigroup (NYSE:C). Our community of more than 125,000 CAPS Fools considers its five-star stocks the most likely to outperform the market. Stocks go up all the time, but unless you were able to predict the pop, what does it matter?

Written in the (five) stars?
For example, 99% of the 155 All-Star members who've rated zinc producer Horsehead Holding have a bullish opinion of the stock. In November, one of those Fools, WheelinBill, explained why this Horsehead was an odds-on favorite to outperform:

low low valuation. commodity that's needed for construction will I think improve with time and infrastructure needs in the U.S. Has a solid operation with good margins and efficiencies. Good management. Only threat is the commodity itself and prices. I think all else is well with this one. Only wish I would have bought when it broke $3.

With the help of yesterday's pop, shares of Horsehead are up 30% since that call.

The bullish lesson
Never become anchored to a stock's previous price levels. Regardless of past gains, a stock can always go higher if the story remains good, the fundamentals keep improving, and the valuation remains cheap relative to its future growth potential. As WheelinBill understands, ignoring a stock simply because it has risen in price is one of the easiest ways to miss out on the next round of multibagger returns.

And now for the losers ...
Of course, winning isn't everything in the stock market.

Here are five of Wednesday's biggest one-star decliners:   

While yesterday's drop in highly-rated gold stocks Barrick and Yamana (NYSE:AUY) may have caught our community off-guard, one-star stocks are fully expected to fall hard:

Did CAPS call the fall?
In June, for instance, CAPS All-Star Ayax2006 was already throwing Colonial BancGroup in the same leaky boat as other frightening financials:

Too many financial institutions over-extended themselves during the long real estate mania and now the hang over is going to be long and painful. … So far, the number of banks going down has been relatively low, compared to the savings and loans crisis, and the number will most likely increase, especially with so many banks with shaky/obscure financials, and low reserves and equity, as they slowly but surely face reality and recognize their increasing underperfoming loans and losses.

Not surprisingly, shares of Colonial are down 86% since that call. In fact, yesterday's ugly 46% plunge came after the regional bank posted a fourth-quarter loss of $825 million on rising mortgage-related charge-offs -- exactly as Ayax2006 had warned.

The bearish takeaway
Learn to avoid growth when it goes absolutely wild. When things are going great, it's easy to become complacent as an investor, but as Ayax2006 understands, that's precisely when you need to make sure management's ambitions aren't getting in the way of sustainable growth. Like Warren Buffett says, "You only find out who is swimming naked when the tide goes out."

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!