Monday's Biggest Stock Stars

Hey there, Fools. I've summoned our Motley Fool CAPS community once again to highlight a few of Monday's biggest winners among the stocks with top ratings 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 Monday, like low-rated 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, 90% of the 434 All-Star members who've rated E*Trade have a bullish opinion of the stock. In late January, one of those Fools, galtline, explained why the online brokerage seemed like a favorable bet. Here's an excerpt from a much longer pitch:

[E*Trade] makes a great asset play. Their customer accounts continue to show a strong increase, and their brand name is strong. ... If you believe that they'll be able to resolve their problems, then there is nothing but tremendous upside for this stock in the long term. ... On the flip side, the worst case scenario is to restructure or go bankrupt (although I believe they would look for a buyout before that happened).

After yesterday's surge, shares of E*Trade have risen over 130% in the last month.

The bullish lesson?
The most important job you have as an investor is to quantify a stock's upside and downside. At the very least, you should always make sure you're being compensated appropriately for the risks you're taking on. If a stock's potential payoff seems generous compared to the chance of loss -- as galtline surmised with E*Trade -- it's best to take Mr. Market up on his offer.

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

Here are five of Monday's biggest decliners with one- or two-star ratings:   

While yesterday's drop in highly rated MEMC Electronic (NYSE:WFR) may have caught our community off guard, low-ranked stocks are fully expected to fall hard.

Did CAPS call the fall?
Two weeks ago, for instance, CAPS member Oraclepkwy chimed in on the GM debacle:

There is an outside chance that "some form of the former GM" will survive but there is, in my opinion, a zero likelihood that the shareholders will see anything once GM is put through Chapter 11 proceedings. Any excess cash left over (assuming there is anything) will be used to top up to the underfunded GM pension plan and it is pretty clear that the UAW will NOT permit any return to shareholders if their membership is going to take a bigger haircut in any surviving entity.

Consistent with that call, shares of GM plunged another 16% yesterday on growing bankruptcy worries.

The bearish takeaway?
Never bet on a stock based purely on a bailout possibility. As CAPS' Oraclepkwy 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!