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 top ratings of four or five stars:

There's a reason I selected those notable gainers, as opposed to other winners making noise on Monday, like low-rated Ford Motor (NYSE:F): 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, 96.6% of the 1,225 members who've rated Terra have a bullish opinion of the stock. Just last month, one of those Fools, barnettech, thought that it was a particularly fertilized time to dig in:

People have to eat even during hard times, and with population growth and a limited amount of land to grow food. Agriculture is a great place to invest. The fundamentals on this stock are great right now.

Consistent with that call, shares of Terra spiked yesterday after CF Industries upped its bid to acquire the fertilizer producer by adding a cash portion to its last offer.

The bullish lesson?
Learn to think like a business owner, not a stock trader. All sorts of noise can depress a stock's price in the short term, but the true investor is able to focus on the factors that really count over time. As CAPS' barnettech demonstrates, by buying into high-quality companies with attractive trends working in their favor, you give yourself plenty of "upside" opportunities -- including getting bought by one of the bigger boys -- to earn an outsized return.

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

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

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

Did CAPS call the fall?
Late last week, for instance, PMI happened to pop up on TMFSTX's screen for silliness:

I looked for companies that were up at least 500% from their 52 week low, had a market cap no greater than 500M, and came with a community rating of 1 or 2 stars. After that I baked in a few qualitative factors and then hit the red thumb lever. The thesis is that the market is showing a bit of irrational exuberance and that these companies are amongst the most irrational of the exuberants.

Following yesterday's near-16% plunge, TMFSTX is off to a strong start with that bear call.

The bearish takeaway?
Never confuse an improving price for improving prospects. As long as a company's long-term profitability remains on shaky footing, short-term, momentum-driven run-ups can last for only so long. As Warren Buffett reminds us, "For some reason, people take their cues from price action rather than from values. ... The dumbest reason in the world to buy a stock is because it's going up."

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!