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:

There's a reason I selected those notable gainers, as opposed to other winners making noise on Tuesday, like one-star airline stocks UAL (NASDAQ:UAUA) and US Airways: 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, 98.2% of the 1,086 All-Star members who've rated UnitedHealth have a bullish opinion of the stock. Just last week, one of those top Fools, KevinKPU, explained why the health insurance giant looked healthy enough to bet on:

Oversold. As with everything our government does, they will settle on a middle ground which accomplishes nothing. [UnitedHealth] and its peers will rebound and continue to thrive when all bark-no bite health care bill passes congress.

Consistent with that call, shares of UnitedHealth bucked yesterday's downtrend after managing to post quarterly earnings and revenue growth of 13% and 8%, respectively, even as enrollment declined.

The bullish lesson?
Learn to pounce on Mr. Market's shortsightedness. Going against the herd is never easy, but if you truly believe in a company's long-term earnings power, some investor uncertainty can provide the very best investment values. In Warren Buffett's words, "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 Tuesday's biggest decliners with one- or two-star ratings:  

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

Did CAPS call the fall?
Three months ago, for instance, CAPS All-Star mrindependent helped school Fools on New Oriental:

New Oriental Education teaches english in China. This company is profitable and growing but its valuations are stratospheric at 34 times trailing p/e. Citron Research asserts that new competitors are emerging and barriers to entry are minimal. Thus, margins and profitability will decline.

In line with that warning, shares of New Oriental sank yesterday when the Chinese education provider reported a 27% jump in quarterly earnings, yet still managed to disappoint investors.

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 assumptions are reasonable, given the company's financial and competitive position. As Buffett reminds us, "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!