Tuesday's Hottest Stocks

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 low-rated AIG (NYSE: AIG). Stocks go up all the time, but unless you were able to predict the pop, what does it matter?

Our community of more than 150,000 CAPS Fools considers its high-star stocks the most likely to outperform the market.

Written in the (five) stars?
For example, 99% of the 363 All-Star members who've rated AgFeed have a bullish opinion of the stock. Just last month, one of those top Fools, SammyJ826, explained why stock seemed healthy enough to chew on:

Insanely low debt, good equity. As China prospers, meat consumption will go up. At this price, I think it's a steal. High inside ownership gives me confidence in management. This and its competitor [Agria] are both good plays in my opinion. I always invest long term, and long term, I'm confident this one's a win.

Consistent with that call, shares of the Chinese animal feed maker popped yesterday after posting a 21% increase in full-year revenue on strong production volume.

The bullish lesson?
Learn to be long-term greedy when others are short-term fearful. Going against the herd is never easy, but if you truly believe in a company's long-run potential, major corrections can offer the very best buying opportunities. As Warren Buffett recently wrote, "Those who invest only when commentators are upbeat end up paying a heavy price for meaningless reassurance."

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

Did CAPS call the fall?
Last summer, for instance, TomEaton warned Fools about getting trampled by Travelzoo:

The stock has run up a lot over the first half of 2009, and the latest 10Q shows increasing revenues over the comparable quarter. ... Estimates project a profit for FY'10 of about .15 per share. ... [T]he P/E is incredibly high, and in my view the improved revenue and earnings do not support the stock price.

Following yesterday's drop, shares of the online travel information provider are trailing the market by eight points since that warning.

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 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 retire wealthy.

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