Wednesday's Biggest Stock Stars

Hey there, Fools. I've summoned our Motley Fool CAPS community once again to highlight a few of Wednesday'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 Wednesday, like one-star stock Talbots. 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, 95.3% of the 1,261 members who've rated JA Solar have a bullish opinion of the stock. Late last year, one of those Fools, All-Star mrindependent, explained why the Chinese solar parts maker would have its day in the sun:

[D]own more than 80% from its peak. The company looks financially stable and it is a good play on two trends I believe in: (1) the solar industry should thrive under Obama presuming petroleum does not collapse any further and (2) China should rebound stronger than the United States given its higher volatility and better prospects.

Consistent with that call, shares of JA Solar surged yesterday after a Wall Street analyst upgraded the stock despite poor quarterly results, citing stabilizing prices and the expectation that shipments will double in Q2.

The bullish lesson?
Learn to pounce on Mr. Market's short-sightedness. Turnaround stocks aren't always easy on the stomach, but if you truly believe in a company's long-term tailwinds, significant slowdowns are the best time to buy. As Warren Buffett once remarked, "Only for short-term investors and market timers is a correction not an opportunity."

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

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

While yesterday's drop in higher-rated Hewlett-Packard (NYSE:HPQ) may have caught our community off-guard, low-ranked stocks are fully expected to fall hard.

Did CAPS call the fall?
Two days ago, for instance, CAPS All-Star minnjim1 showed skepticism over Palm's seemingly Pre-mature price run:

Stock price has soared on the hopes that a new phone will be a blockbuster savior for the company. Meanwhile, the reality is grim as the company has negative margins, returns, revenue growth, ebitda, net income, cash flow, and even book value is negative. … Does this sound like a good investment?

Consistent with that warning, shares of Palm sank yesterday after a Wall Street analyst downgraded the stock on valuation concerns.

The bearish takeaway?
Built into a stock's price are very specific cash flow assumptions. Therefore, it's your job as an investor to assess whether those expectations are reasonable, given the company's financial and competitive position. As Buffett reminds us, "Investors making purchases in an overheated [stock] need to recognize that it may often take an extended period for the value of even an outstanding company to catch up with the price they paid."

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!