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:

There's a reason I selected those notable gainers, as opposed to other winners making noise on Wednesday, like low-rated Motorola (NYSE:MOT): Stocks go up all the time, but unless you were able to predict the pop, what does it matter?  

Our community of more than 140,000 CAPS Fools considers its high-star stocks the most likely to outperform the market.

Written in the (five) stars?
For example, 98.7% of the 236 All-Star members who've rated Caraco have a bullish opinion of the stock. In late June, one of those top Fools, mrindependent, highlighted the generic-drug maker's compliance issues as a hidden opportunity: "The FDA is flexing its muscles to show that there is a new sheriff in town. I am not sure how Caraco enraged them to this extent but Caraco has hundreds of millions to gain by fixing the problem."

Caraco is already up 65% since that call. In fact, yesterday's 21% surge came after the company finally reached a deal with the FDA to resume manufacturing once several requirements are met.

The bullish lesson?
Learn to embrace the bargains that only bad news can provide. As CAPS' mrindependent understands, stigmatized stocks aren't always easy on the stomach. But if the company's long-term earnings power remains intriguing, you might be staring at an authentic market-beater. Like Warren Buffett reminds us, "Great investment opportunities come around when excellent companies are surrounded by unusual circumstances that cause the stock to be misappraised."

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 ReneSola (NYSE:SOL) may have caught our community off guard, low-ranked stocks are fully expected to fall hard.

Did CAPS call the fall?
Just last month, for instance, CAPS All-Star JakilaTheHun advised Fools to live without Martha Stewart. Here's an excerpt:

All in all, we seem to have a small-cap company that is structured more like a giant, inefficient conglomerate. Even if the stock price is low by historical standards, it still seems very high compared to net assets and historical profits. ... Tarnished name, minimal assets compared to the stock price, zero margins, unimpressive cash flows -- I just can't see what's to like here.

Following yesterday's drop, shares of the media and merchandising company are lagging the market by more than 10 points since that warning.

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 beliefs are reasonable, given the company's business model and outlook. As Buffett warns, "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 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!