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 AMD (NYSE:AMD). 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, 97.4% of the 786 members who've rated Himax have a bullish opinion of the stock. Two months ago, one of those Fools, All-Star Babachrono, explained why the flat-panel chip maker looked too good to pass up:

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.

Shares of Himax are already up over 75% since that call. In fact, yesterday's double-digit pop came after the company's first-quarter profit dropped 87%, but it issued upside guidance for Q2 on rebounding revenue.

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 Warren Buffett recently wrote, "Pessimism is the friend of the long-term investor, 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 highly rated Infosys Technologies 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 masher41 thought Home Depot had plenty of room for improvement: "Home Depot stores are messy, disorganized, and pale in comparison to their major competitor Lowe's (NYSE:LOW). [Home Depot] is dead money until some radical changes are made."

Consistent with that criticism, shares of Home Depot sank yesterday after its 44% quarterly profit increase didn't look so impressive in comparison with the results of rival Lowe's just a day earlier.

The bearish takeaway?
Trust your own eyes above all else. Just as it might pay to "buy what you know" (and enjoy), it's probably a good idea to stay away from stocks whose services are increasingly disappointing you. Due diligence is always required, but as CAPS' masher41 understands, if you're not a satisfied customer, it might be a stretch to think you'll be a satisfied investor. 

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!