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 Sprint Nextel. Stocks go up all the time, but unless you were able to predict the pop, what does it matter?

Our community of more than 145,000 CAPS Fools considers its high-star stocks the most likely to outperform the market.

Written in the (five) stars?
For example, all but four of the 468 All-Star members who've rated Motley Fool Stock Advisor pick Unit have a bullish opinion of the stock. In early April, one of those top Fools, AlphaPuppy, helped our community drill down on the oil and gas driller:

Our [fair value] approximates the company's very clean book value-and presumes that the company will earn some economic margin in 2009 despite the very bleak market conditions. At a significant discount to fair value, the risk/reward equation seems compelling. ... [Unit] is just a good, old-fashioned "book-value-bargain", to borrow from the late, great John Templeton.

Including yesterday's pop, shares of Unit are up an impressive 88% since that call.

The bullish lesson?
Learn to pounce on stocks priced for imperfection. It's virtually impossible to call a stock's "bottom," but if you're confident that the risks are already baked into the price, there's a good chance your investment will turn out well over time. As legendary value investor Sir John Templeton famously said, "The time of maximum pessimism is the best time to buy."

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 ING Groep may have caught our community off guard, low-ranked stocks are fully expected to fall hard.

Did CAPS call the fall?
This past summer, for instance, CAPS member suvannarith warned Fools that Hot Topic would start to cool off: "The [earnings before interest and taxes] is at a 3 year high but the projected growth rate is expected to decline. Despite nearing the upcoming school year, the economy is not prepared to increase retail spending."

Including yesterday's loss, shares of the specialty teen retailer are lagging the market by 40 percentage points since that call.

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 competitive outlook going forward. As Warren Buffett reminds us, "The investor of today does not profit from yesterday's growth."

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!