Tuesday's Biggest Stock Stars

Hey there, Fools. I've summoned our Motley Fool CAPS community once again to highlight a few of Tuesday'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 Tuesday, like one-star biotech Hemispherx (NYSE:HEB): 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 4,973 members who've rated Caterpillar have a bullish opinion of the stock. In late March, one of those Fools, ZakDolan, explained why the heavy equipment giant was a good bet to crawl back:

[Caterpillar] has been beaten down too much lately. Global infrastructure spending is going to pick up and when it does, [Caterpillar] will clean up. Many governments will try to use infrastructure to get themselves out of the global recession, and that means [Caterpillar].

Shares of Caterpillar are already up 37% since that call. In fact, yesterday's pop came after the company boosted its 2009 profit forecast on signs that government stimulus efforts are, indeed, starting take hold -- just as ZakDolan had pitched.

The bullish lesson?
Learn to embrace the bargains that only bad news can produce. As CAPS' ZakDolan understands, industry champions often move higher well before the economy or even sentiment turn, so it's important to jump in while there's still blood in the streets. As Warren Buffett tells it, "[I]f you wait for the robins, spring will be over."

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

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

While yesterday's drop in highly-rated Headwaters may have caught our community off-guard, low-ranked stocks are fully expected to fall hard.

Did CAPS call the fall?
In 2006, for instance, CAPS member bershats was already warning Fools about Lexmark's smudgy profit growth:

Lexmark makes printers that compete with aggressive, successful companies like [Hewlett-Packard (NYSE:HPQ)] … in the home and small office. … EPS is only increasing because A) Margins are increasing because with fewer printers sold, revenue skews more toward high margin ink, and B) Management keeps buying back shares. Neither of these are sustainable trends.

Shares of the printer maker are down a depressing 75% since that warning. In fact, yesterday's plunge came after the company posted a second-quarter earnings drop of 80% and issued third-quarter guidance that also disappointed investors -- consistent with bershats' bear call.

The bearish takeaway?
Always figure out the story behind the numbers. When your company seems to be satisfying Wall Street, it's easy to become complacent as an investor, but that's exactly when you need to ensure that those results are sustainable going forward. As Buffett reminds us, "The investor of today does not profit from yesterday's growth."

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!