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 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 Monday, like one-star stock Macy's (NYSE:M). Stocks go up all the time, but unless you were able to predict the pop, what does it matter?  

Our community of more than 135,000 CAPS Fools considers its "high-star" stocks the most likely to outperform the market.

Written in the (five) stars?
For example, 95% of the 569 members who've rated Dynegy have a bullish opinion of the stock. In February, one of those Fools, Surfalot, described the power producer in pretty cheap terms:

[Dynegy] sells to utilities. Price under $2/share reflects fear of being unable to rollover debt ([Dynegy] does not have to do this until 2011) and depression fears. ... Even in these worst case scenarios, the book value of this company is 5x current stock price and asset sales/liquidation value of company (incl. lt debt) would pay off common stockholders.

With the help of yesterday's double-digit pop, Dynegy is up 17% since that call.

The bullish lesson?
In investing, it's far more important keep your head down than up. As long as you make a conscious effort to limit your downside, market-trouncing returns usually just take care of themselves. As value superinvestor Seth Klarman once wrote, "Rather than targeting a desired rate of return, even an eminently reasonable one, investors should target risk."

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

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

While yesterday's drops in highly rated gold stocks Yamana (NYSE:AUY) and Barrick may have caught our community off-guard, low-ranked stocks are fully expected to fall hard.

Did CAPS call the fall?
Last week, for instance, CAPS member Ewok82 shared these bearish thoughts on KeyCorp: "Uncertain are the bank's new profit centers. More certain are their expected losses. I believe that a gradual decline in stock price is inevitable, even with government support."

After yesterday's drop, shares of the regional bank are already down 11% since that warning.

The bearish takeaway?
Never bet on a stock based purely on a bailout possibility. As CAPS' Ewok82 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 might end with horrifying returns.

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!