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 State Street 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, 94% of the 549 All-Star members who've rated US Bancorp have a bullish opinion of the stock. In late February, one of those Fools, checklist34, explained why the regional bank looked particularly timely:

Buying banks the last time they were going to go under due to a real estate crisis (remember, this has happened before) paid off huge. That said I'm trepid about banks due to my basic lack of understanding of whats going on, where they are at, and everything else. ... But you gotta go long on some bank and [US Bancorp] and [Wells Fargo (NYSE:WFC)] seem like the two with the best value/potential.

Shares of US Bancorp have nearly doubled since that call. In fact, yesterday's pop came after the company's first-quarter earnings release. Profit fell sharply on rising loan losses, but the bank notched record mortgage banking revenue and 15% growth in net interest income -- consistent with checklist34's logic.

The bullish lesson?
When searching for value in a recession, "good" is almost never enough. As CAPS' checklist34 understands, the key to capitalizing on a downturn is buying best-of-breed businesses that actually stand to benefit from an industry shakeout (by growing market share at the expense of weaker competitors). Sometimes, we can get away with owning second-rate companies, but when things get tough, it's crucial to stick with the leaders.

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 highly rated Merck (NYSE:MRK) may have caught our community off-guard, low-ranked stocks are fully expected to fall hard.

Did CAPS call the fall?
In late January, for instance, CAPS member iamacanadian warned of tough times for New York Times:

The paper-based news source is fading, and as much as the NY Times has done well with their site and on-line content, it won't be enough to keep them going. Unless someone comes up with a brilliant new idea, they're going to start printing none of the news that's fit to print.

Consistent with that call, shares of newspaper publisher plunged yesterday, after its quarterly loss widened to $74.5 million on a 27% drop in advertising revenue.

The bearish takeaway?
Always make sure the megatrends are your friends. For market-beating returns, it's crucial that you position your portfolio to take advantage of massive shifts in commerce, rather than struggle against where the world is headed. As iamcanadian understands, buying into "buggy whip" companies disguised as bargains is one of the easiest ways to crash in the market.

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!