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 a top rating 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 Monday, like low-rated AIG (NYSE:AIG): 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 270 All-Star members who've rated ATP Oil & Gas have a bullish opinion of the stock. In May, one of those top Fools, TSIF, explained why the small-cap oil and natural gas producer seemed too cheap to pass up. Here's an excerpt from a longer pitch:

Eventually supply and demand will tilt in ATP's favor. In the short run, their wells are some of the more expensive to maintain and transfer the fuel. If oil were to stay sub $50 then profit would be difficult, but I feel this is sufficiently unlikely that I put some real coin in ATP's meters.

Following yesterday's market-bucking pop, shares of ATP have risen by 19% since that call.

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 supply/demand outlook, it might be the perfect time to jump in. As Warren Buffett recommends: "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 Monday's biggest decliners with a one- or two-star rating:  

While yesterday's drop in five-star stock Berkshire Hathaway (NYSE:BRK-A) may have caught our community off-guard, low-ranked stocks are fully expected to fall hard.

Did CAPS call the fall?
In June, for instance, CAPS All-Star ikkyu2 warned in a reply to pjmiii13's pitch that Best Buy didn't seem like the best of buys:

Best Buy is not what killed Circuit City, and it's not going to benefit from seizing a growing price of a rapidly shrinking pie. If competing directly with Wal-Mart on price wasn't bad enough ... they also have Amazon (NASDAQ:AMZN) and other online retailers breathing down their neck. It won't be long before they're in the same bin as Circuit City.

Of course, shares of the consumer-electronics giant sank yesterday after a Wall Street analyst downgraded the stock, citing increased competition from online and mass merchandise retailers -- exactly as ikkyu2 had warned.

The bearish takeaway?
Never underestimate the protection that a competitive edge provides. As CAPS' ikkyu2 understands, without a meaningful moat, businesses are constantly exposed to the ravages of fierce rivals. As Buffett tells it, "The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage."

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!