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 low-rated DryShips (NASDAQ:DRYS). Stocks go up all the time, but unless you were able to predict the pop, what does it matter?  

Our community of more than 130,000 CAPS Fools considers its five-star stocks the most likely to outperform the market.

Written in the (five) stars?
For example, 98% of the 1,285 members who've rated McDermott have a bullish opinion of the stock. Last month, one of those Fools, directd, explained why the engineering and construction company looked too cheap to pass on:

At 4 times earnings this looks like an absolute steal. Global stimulus packages amounting to trillions of dollars much of which will be spent on infrastructure and energy will benefit this industry overall. … I expect projects and backlogs to go up as massive gov. stimulus efforts and a slow economic recovery appear far more likely than the Argmaggedon the alarmists are speaking of.

McDermott is beating the market by 18 points since that call. In fact, yesterday's pop came after a KeyBank analyst called it "one of the more compelling stories" in the sector -- consistent with directd's comments.

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 Wednesday'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.

Did CAPS call the fall?
Last month, for instance, CAPS All-Star Zeti schooled our community on the bearish side of Apollo Group:

P/E of ~22, revenue stream based on pie-in-the-sky objectives gained from virtually worthless documentation. Heading into a litigation maelstrom, not to mention government scrutiny. The biggest shareholders, and button pushers in the company are currently liquidating their stock to the sheeple.

With the help of yesterday's drop, shares of the education provider are already down 21% since that call.

The bearish takeaway?
Always keep an eye on the insiders. Now, it's true that insiders may sell for reasons that have nothing to do with their business outlook, but when you're already skeptical of the stock's valuation, heavy insider selling should simply cement the bear case. With Apollo Group, for example, insider selling turned out to be a great sign of bad things to come.

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!