Tuesday's Biggest Stock Stars

Hey there, Fools. I've summoned our Motley Fool CAPS community once again to highlight a few of Tuesday'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 Tuesday, like low-ranked Las Vegas Sands (NYSE:LVS) 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, 94% of the 959 members who've rated Seagate Technology have a bullish opinion of the stock. In January, one of those Fools, bigpoppapav, explained why the hard-disk-drive specialist was being unduly punished:

The notion that hard drives are being replaced by flash drives is ridiculous. Flash drives will win in nanocomputing but hard drives will win for mass storage. Even tape drives still exist.

Shares of Seagate are up a nice 25% since that call. In fact, yesterday's pop came after the company introduced its new BlackArmor storage solutions for small businesses -- consistent with bigpoppapav's take.

The bullish lesson?
When the stock of a quality company takes a beating, always try to figure out why. If Mr. Market's punishment seems to make no sense, given the market's real demand profile, it might be the perfect time to jump in. As Warren Buffett recently wrote, "When investing, pessimism is your friend, euphoria the enemy."

And now for the losers ...
Of course, winning isn't everything in the stock market. Here are five of Tuesday's biggest decliners with a one- or two-star rating:   

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

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

It is not a liquidity problem - it is an asset quality problem. 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 74% since that call. Yesterday's plunge followed Huntington's announcement that it would take the dilutive action of boosting its tangible common equity by $43.1 million through a preferred stock swap.

The bearish takeaway?
Always identify a stock's risks before they come back to bite you. One of the most common mistakes investors make is not paying close enough attention to a company's true financial position. Unless you can reasonably conclude that a company will remain intact even under the worst of scenarios, investing in overleveraged balance sheets (with tons of unknown exposure) just isn't worth the headaches.

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!