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 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 Monday, like one-star stock InterOil (NYSE:IOC). 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, 97.5% of the 602 members who've rated AECOM have a bullish opinion of the stock. Late last year, one of those Fools, Hoping2Retire, explained why the engineering and construction company looked seductively stimulating:

There will be significant pressure for new infrastructure project investments in US and Europe to reduce unemployment in the next several years. Additionally, Asia will continue its massive investments in this area and, accordingly, I architecture and engineering firms should do well.

Shares of AECOM are up an impressive 76% since that call. In fact, yesterday's pop came after a Wall Street analyst upgraded the stock on confidence that the company should continue to benefit from increasingly visible government stimulus spending.

The bullish lesson?
Learn to be long-term greedy when others are short-term fearful. Going against the herd is never easy, but if you truly believe in a company's long-run trends, significant slowdowns offer the very best opportunities to buy. As Warren Buffett recommends, "Put together a portfolio of companies whose aggregate earnings march upward over the years, and so also will the portfolio's market value."

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

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

While yesterday's drop in highly rated Healthways (NASDAQ:HWAY) may have caught our community off guard, low-ranked stocks are fully expected to fall hard.

Did CAPS call the fall?
Last year, for instance, CAPS All-Star IBDFool4U kicked Deckers while it was up:

- P/E of 41 (recession OR uncertainty over next winters sales will cause to drop).
- At best, growth rate expected to slow, and one must remember that prices will drop as unit growth rate also slows, reducing revenue.
- Fashion trends only last 3-5 years, and Ugg's were the "in" shoe both last winter and this winter, so its days are numbered.
- They have no other "superstar" products on the horizon, and hard to predict anyway (Teva's should start to replace flip flops, but hard to predict how much benefit that will be). No moat that I can see.

After yesterday's drop, shares of the shoemaker are down 51% since that call.

The bearish takeaway?
Implicit in a stock's price are very specific growth and risk assumptions. Therefore, it's your job as an investor to assess whether those assumptions are reasonable, given the company's 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!