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-rated financials Fifth Third and Citigroup (NYSE:C). 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, 98% of the 193 All-Star members who've rated Himax Technologies have a bullish opinion of the stock. One month ago, All-Star Babachrono explained why the flat-panel chip maker looked like a clear winner:

Cheap stock, no long term debt, started and increased dividend recently during the market tough times. Even though it recently lowered guidance it has still surprised over estimates the last several quarters ... will easily come back into favor as the market recovers and their devices become popular again.

Following yesterday's pop, shares of Himax are up an amazing 71% since that call.  

The bullish lesson?
Always be on the hunt for stocks priced for imperfection. It's virtually impossible to call a stock's "bottom," but if you're confident that low expectations 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 Tuesday's biggest decliners with a one- or two-star rating:  

While yesterday's plunge in highly rated Oshkosh Truck may have caught our community off guard, low-ranked stocks are fully expected to fall hard.

Did CAPS call the fall?
Just yesterday, for instance, CAPS member TMFGalagan kept up with the ongoing CAPS commentary on the GM saga:

I don't see how this emerges from its losses without bankruptcy or some hugely dilutive event as with [Fannie Mae]/[Freddie Mac]. Could bounce heavily, of course, but I still think that'd be temporary.

Consistent with that call, shares of GM plunged over 25% for the second straight day, after new CEO Fritz Henderson said bankruptcy is "certainly more probable" than before.

The bearish takeaway?
Never bet on a stock based purely on a bailout possibility. As CAPS' TMFGalagan understands, assistance from the government doesn't necessarily mean that current shareholders stand to benefit. Unless you're truly able to discount the massive dilution effects and risk exposures that still remain, buying into "zombie" institutions is strictly speculation.

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!