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 I selected those notable gainers as opposed to other winners making noise on Wednesday, such as low-rated Alcatel-Lucent (NYSE:ALU): 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, 98% of the 449 All-Star members who've rated Mechel have a bullish opinion of the stock. In late April, one of those top Fools, JakilaTheHun, explained why the Russian steel maker was a risk well worth taking:

To be honest, I tend to keep away from Russian companies normally. … All the same, Mechel is selling at a significant discount to book value right now. … Steel and base metals are still in their bust phase, so prices are only going to go upwards. … [Assuming] you can take their financials at roughly face value, this is undervalued right now.

Following yesterday's surge, shares of Mechel are already up by more than 60% since that call. 

The bullish lesson?
In investing, it's far more important to keep your head down than up. As long as you make a conscious effort to limit your downside, as CAPS' JakilaTheHun demonstrates, market-trouncing returns usually just take care of themselves. Like 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 Wednesday's biggest decliners with one- or two-star ratings:   

While yesterday's drop in highly rated Yum! Brands (NYSE:YUM) may have caught our community off-guard, low-ranked stocks are fully expected to fall hard.

Did CAPS call the fall?
Last month, for instance, CAPS All-Star PDTBiotech voiced skepticism over Antigenics' recent test data, which reportedly showed that its cancer drug Oncophage helped certain patients live considerably longer:

The difference in overall survival in all patients treated is far less impressive than the difference in the subset, and they're nowhere near median overall survival. No way this platform keeps this up through the rest of the trial, this is almost certainly just a statistical blip which will work itself out over time. Efficient market shmefficient market.

After yesterday's market-bucking drop, shares of the biotech have already fallen by 39% since that warning.

The bearish takeaway?
Never confuse a soaring price for improving fundamentals. Any stock can be bid up on unbridled enthusiasm, but if those expectations aren't rooted in economic reality, it's just a matter of time before your rocket stock turns into a torpedo. As Warren Buffett reminds us, "For some reason, people take their cues from price action rather than from values. … The dumbest reason in the world to buy a stock is because it's going up."

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!