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 low-rated homebuilders Lennar (NYSE:LEN) and KB Home. 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, 95.3% of the 1,420 members who've rated Walter Energy have a bullish opinion of the stock. Late last year, one of those Fools, einsteinpfleet, explained why the coal producer looked like a bankable bet on black:

Coal has been dragged down with the rest of the commodity market and is a good buy at this level. Walter announced it would separate its housing business from its coal business, which is much more interesting now than when it was announced. If Obama and China decide to implement infrastructure programs, Walter should be a beneficiary.

Following yesterday's double-digit pop, shares of Walter are up an impressive 160% since that call.

The bullish lesson?
Learn to pounce on Mr. Market's short-sightedness. Going against the herd is never easy, but if you truly believe in a company's long-term tailwinds, significant slowdowns offer the very best time to buy. As Warren Buffett said, "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 highly rated Paychex (NASDAQ:PAYX) may have caught our community off guard, low-ranked stocks are fully expected to fall hard.

Did CAPS call the fall?
In late March, for instance, CAPS member carbonates shared this dim view of First Solar:

I think [First Solar] is overvalued at present. Besides the poor economic conditions that prevail in their market, they may soon have a raw material problem. It seems Congress, in their infinite wisdom, is considering a bill that will have a huge negative impact on mining tellurium, which is the metal that [First Solar] depends on to build their product.

Consistent with that call, shares of the solar-panel maker sank yesterday after it issued a cost reduction forecast that was lighter than earlier estimates.

The bearish takeaway?
There's really no substitute for knowing a business model cold. As CAPS' carbonates demonstrates, the only way to reasonably predict a company's fortunes is to understand how its sales and input costs interact with various industry and economic variables. Like Buffett once wrote, "Equity Investment Strategy = Evaluate the Business in Its Entirety."

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!