Monday's Biggest Stock Stars

Hey there, Fools. I've summoned our Motley Fool CAPS community once again to highlight a few of Monday'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 Monday, like low-rated Hartford Financial (NYSE:HIG). 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.

Written in the (five) stars?
For example, 95% of the 331 All-Star members who've rated LoopNet, an online marketplace for commercial real estate, have a bullish opinion of the stock. In late October, one of those Fools, MJKpayday, helped keep our community in the loop:

LoopNet is most likely stop No. 1 for anyone interested in buying commercial property or looking to buy a small business. ... LoopNet also has that nifty "everyone's doing it and everyone's doing it here so I'm going to do it here too" social inertia that brings much added value. ... In the end I think LoopNet has the right product, no debt, great earnings potential as markets turn, and a cheap valuation.

With the help of yesterday's pop, LoopNet is beating the market by over seven points since that call.

The bullish lesson?
Always be on the hunt for massive economic moats. A sustainable competitive advantage is a great indicator of long-term success, so if you've identified one of the more powerful ones at play -- invaluable intangible assets, cost advantages, high switching costs, or in LoopNet's case, network effects -- you might be on to something. As Warren Buffett once said, "The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage."

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

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

While yesterday's drop in five-star stock NYSE Euronext (NYSE:NYX) may have caught our community off-guard, they fully expect one-star stocks to fall hard.

Did CAPS call the fall?
In June, for instance, CAPS All-Star glenvar was already raising red flags on Huntington Bancshares:

Huntington Bankshares is another poor quality asset bank. ... Currently 60% of its equity capital and loss reserves are balanced out by insolvent assets. In the current economic environment it is unlikely that the capital will grow, but very likely that the insolvent loans will.

Not surprisingly, shares of the regional bank are down 68% since that call. In fact, yesterday's nasty 30% plunge came on worries that Huntington would need to raise capital in the face of widening credit losses -- just as glenvar 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 underestimating how sensitive a business model can be to specific economic and industry-related variables. Unless you can reasonably conclude that a company will remain intact even under the worst of scenarios, investing in highly levered, deteriorating balance sheets just isn't worth the headache.

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 stocks that win (or lose) 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, to boot!