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 stock MBIA (NYSE:MBI): 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, 99% of the 549 All-Star members who've rated Mueller Water have a bullish opinion of the stock. In April, one of those top Fools, tacksan123, explained why the flow control products maker seemed all set to surge:

While there is no question that the recent economic woes have slowed down building and developing, a major source of [Mueller's] future growth, many municipalities are still facing the need to upgrade outdated or insufficient water and sewer systems. I feel that this will help drive long term growth.

Consistent with that call, shares of Mueller popped over 15% yesterday, despite posting a quarterly loss of $19 million, on optimism that municipal water-related spending will indeed increase next year.

The bullish lesson?
When an attractive business takes a beating, always try to figure out why. If Mr. Market's punishment seems to make no sense, given the company's long-term demand outlook, it might be the perfect time to jump in. As Warren Buffett reminds us, "Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good results."

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 five-star stock CapitalSource may have caught our community off-guard, low-ranked stocks are fully expected to fall hard.

Did CAPS call the fall?
Late last year, for instance, my fellow Fool Alyce Lomax (TMFLomax) was already warning Fools about riding Cedar Fair:

A lot of debt, not so FUN. (Especially in the current situation.) Also … that whole recession thing of course.

Not surprisingly, shares of the amusement park operator are down 45% since that call. In fact, yesterday's market-defying drop came after the company's quarterly revenue and profits continued to slide much more than expected.

The bearish takeaway?
Learn to capitalize on conservatively capitalized companies. When business is booming, balance sheet risk may seem trivial, but as the Cedar Fair situation demonstrates, any material downturn can spell doom for the debt-laden. As Buffett writes in the Berkshire Hathaway Owner's Manual, "We will reject interesting opportunities rather than over-leverage our balance sheet."

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!