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:

There's a reason why I selected notable five-star gainers, as opposed to other big-name winners making noise on Wednesday, like one-star stock General Motors (NYSE:GM). 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, 97.2% of the 2,559 members who've rated Netgear have a bullish opinion of the stock. Three weeks ago, one of those Fools, oneilldp, explained why the networking equipment maker looked like a good bet to turnaround:

This company makes good products and has a lot of cash to survive the down turn. They have a good niche delivering to consumers and small businesses. The company has good management and is conservative, which will benefit them in a year or two when demand picks up and many competitors go out of business. Sales may stay down for a while, but they will pick up eventually and [Netgear] will gain market share and increase profit margins.

With the help of yesterday's pop, shares of Netgear are beating the market by 12 points since that call.

The bullish lesson?
When searching for value in a recession, "good" is almost never enough. As CAPS' oneilldp understands, the key to this market is cash-rich, best-of-breed businesses that actually stand to benefit from an industry shakeout (by growing market share at the expense of weaker competitors). Sometimes, we can get away with buying into second-rate companies, but when times are tough, it's critical to stick with the leaders.

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 plunge in five-star stock Chicago Bridge & Iron (NYSE:CBI) may have caught our community off-guard, we fully expect one-star stocks to fall hard.

Did CAPS call the fall?
A year ago, for instance, CAPS member majakblue was already raising the red flags on Pharmasset:

Ridiculous run-up. Typical pharma wannabe IPO. It probably will outperform initially as investors raise the price artificially high, and then tank as it becomes clear that the company will not be profitable for years to come if ever. ... As for me, I am a geneticist-biochemist who has worked for pharma start-ups, and I think it is safer to invest in the lottery.

With the help of yesterday's drop, shares of the clinical-stage pharmaceutical company are down 64% since that call.

The bearish takeaway?
Always invest with a healthy dose of skepticism. There are certainly companies that have the "next big thing" in their pipeline, but unless you have exceptional insight in identifying them, there's really no need to take such long-shot bets. As CAPS' majakblue understands, any budding young company can be bid up on enthusiasm, but if the expectations aren't rooted in reality, it's just a matter of time before your rocket stock "turns torpedo."

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!