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 four or five stars.

Without further ado:

There's a reason why I selected those notable gainers, as opposed to other winners making noise on Thursday, like low-ranked 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 "high-star" stocks the most likely to outperform the market.

Written in the (five) stars?
For example, 93% of the 626 All-Star members who've rated Alcoa have a bullish opinion of the stock. Before yesterday's open, one of those Fools, stockdoc00, explained why the aluminum giant looked too cheap to pass up:

While demand has dropped significantly due to tumbling world economies, with the dividend cut and dilution of new shares, there probably is not much downside left. Also with "shovel ready" world stimulus packages in the works, demand should start to rise this coming year. A decent entry point at this price.

Consistent with that call, shares of Alcoa surged yesterday after raising a larger-than-planned $1.3 billion in fresh capital that should provide, as one Wall Street analyst put it, enough liquidity "to make it comfortably through 2009."

The bullish lesson?
In investing, it's far better to keep your head down rather than up. As long as you make a conscious effort to limit your downside, like stockdoc00 demonstrated, market-trouncing returns usually just take care of themselves. As Warren Buffett once wrote, "Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good results."

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

Here are five of Thursday's biggest decliners with a one- or two-star rating:  

While yesterday's drop in highly rated private equity firm American Capital may have caught our community off guard, low-ranked stocks are fully expected to fall hard.

Did CAPS call the fall?
Last week, for instance, CAPS member TSIF brought Capital One's seemingly unsustainable price action to our community's attention:

Nice run up. Somehow in all the euphoria people missed the part about cut dividends and liquidity. I thought Capital One was a grain above the rest due to its mix of credit card exposure and what I thought was less bad derivatives, but I was wrong.

After yesterday's drop, shares of Capital One are lagging the market by nine points since that call.

The bearish takeaway?
Never confuse a rising price for improving fundamentals. As long as a company's underlying economics continue to deteriorate, emotionally charged run-ups can only be sustained for so long. By doing your own homework and ignoring Mr. Market's mood swings, as TSIF shows, you give yourself a better chance of coming to a realistic view of a company's risk/reward profile.

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!