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 stocks with top ratings that recently were four or five stars:

There's a reason I selected those notable gainers, as opposed to other winners making noise on Wednesday, like one-star stock Palm. 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, 92% of the 257 All-Star members who've rated TASER have a bullish opinion of the stock. Just last week, one of those top Fools, alars79, explained why the stock seemed like a stunning opportunity:

Dominate player in the [electronic control device] market. Solid cash position and no debt. Has had consistent revenues during the Great Recession. With continued terrorism fears, this type of weapon seems to make sense for on-board security personnel. Tase me, bro!

Consistent with that call, shares of TASER received a massive jolt yesterday after announcing that three large orders would drive fourth-quarter revenue well above Wall Street estimates.

The bullish lesson?
Pay attention to small caps that have the potential to land big business. Just a few major contract wins can translate into huge growth for a little company, so concentrate on the top dogs with powerful trends working in their favor. If those tailwinds are strong enough, as they appear to be for TASER, blockbuster deals will likely keep blowing in that company's direction.

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 loss in highly rated Verizon Communications (NYSE:VZ) 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 ksiu1 built a convincing bear case against Beazer:

This stock is bleeding cash. The only good thing is that it's bleeding less money than it used to but based on the last time it was profitable, Beazer would need RE prices to back to 2006 and 2007 levels and that just isn't happening in the near future. ... they're just not making money on the sales of their homes.

Consistent with that warning, shares of the homebuilder plunged yesterday after its announcement to sell 18 million shares of common stock triggered serious dilution concerns.

The bearish takeaway?
Always follow the free cash flow. Investing, after all, is about laying out money today in order to receive more of it in return tomorrow. As CAPS' ksiu1 understands, if a business habitually burns through cash, while having little hope for any near-term relief, chances are you won't see a return of your capital, much less a return on your capital.

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!