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, such as low-rated MGM Mirage (NYSE:MGM). 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, 97.5% of the 284 All-Star members who've rated Patriot Coal have a bullish opinion of the stock. In late April, one of those top Fools, devilinside, explained why the coal producer looked like a bankable bet on black:

Steel can't be produced without it. ... [Patriot] Coal is poised to go far once this economy turns around. They seem to have their debt under control and enough cash flow to keep them going until things do turn around. They have reduced production and are quickly reducing inventories. No industrial nation can grow without coal.

Including yesterday's pop, shares of Patriot have more than quadrupled since that call.

The bullish lesson?
Learn to embrace the bargains that only bad news can provide. As CAPS' devilinside understands, industry champions often move higher well before the economy or sentiment ever turns, so it's important to jump in while there's still blood in the streets. In Warren Buffett's words, "If you wait for the robins, spring will be over."

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 plunge in five-star stock GigaMedia may have caught our community off guard, low-ranked stocks are fully expected to fall hard.

Did CAPS call the fall?
CAPS All-Star TSIF, for instance, raised a red flag on Radian's price surge this past Tuesday:

Radian Group tries to buy back bonds at $0.35 on the dollar, gets its rating downgraded by Moody's, continues writedowns on mortgage guarantees, yet sports a 25% upside today in unison with some of it's equally challenged peers. ... Radian has a lot more work to do before any profits materialize. Even then, they will be weak. The 25% upward movement Radian got today is over done.

Following yesterday's double-digit plunge, TSIF is off to a strong start with that bearish call.

The bearish takeaway?
Never confuse a one-day pop with a multiyear trend. If a company's underlying fundamentals continue to deteriorate, short-term bouts of irrational exuberance can last for only so long. As Buffett observes: "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 retire wealthy.

Log in to CAPS today, and start participating. It's absolutely free -- and a lot of fun!