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 one-star financial Capital One (NYSE:COF). 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, 98.9% of the 709 All-Star members who've rated NetGear have a bullish opinion of the stock. In October, one of those Fools, TMFselzhanik, explained why the Wi-Fi router maker was too cheap to pass on:

I'll grant the bears that there's weakened demand right now, and Cisco (NASDAQ:CSCO) should continue to beat them. But someone could buy this company, and very conservatively expect to be paid back in full out of its current cash and future cash flow in just 6 years. It's just way too cheap.

Consistent with that call, shares of NetGear surged yesterday, despite posting a sharp drop in quarterly earnings, as demand for its networking gear held up much better than Wall Street had expected.

The bullish lesson?
Learn to pounce on stocks priced for imperfection. It's virtually impossible to call a stock's "bottom," but if you're confident that the risks are already baked into the price, there's a good chance your investment will turn out well. As Warren Buffett recently wrote, "Whether we're talking about socks or stocks, I like buying quality merchandise when it is marked down."

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 five-star stock National Oilwell Varco (NYSE:NOV) may have caught our community off-guard, low-ranked stocks are fully expected to fall hard.

Did CAPS call the fall?
In February, for instance, CAPS member ice23bear warned that CIT Group (and rivals) had plenty of short-term pain left ahead: "CIT should survive, and I expect them to better than many others in their market (e.g. [iStar Financial]) but this whole sector will take years to absorb their losses and produce profits."

In line with that bear call, shares of the commercial lender plunged yesterday after its quarterly loss widened to $504.5 million on growing credit losses, and its dividend was suspended to conserve capital.

The bearish takeaway?
It's earnings that count. As CAPS' ice23bear understands, investing is simply about putting money up front today so you can get more of it in return tomorrow. If a company currently loses money and, worse yet, has few prospects for future cash-flow production, chances are you won't see a return of your capital, much less a return on your capital.

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!