Thursday's Hottest Stocks

Hey there, Fools. I've summoned our Motley Fool CAPS community once again to highlight a few of Thursday'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 Thursday, like low-rated FuelCell Energy. Stocks go up all the time, but unless you were able to predict the pop, what does it matter?  

Our community of more than 160,000 CAPS Fools considers its high-star stocks the most likely to outperform the market.

Written in the (five) stars?
For example, 98% of the 168 All-Star members who've rated Motley Fool Rule Breakers pick GeoEye have a bullish opinion of the stock. Last year, one of those top Fools, TMFBreakerTAllan, kindly helped our community keep a close eye on the stock:

From a profitable contract with the US Government and the ability to sell imagery to entities from oil companies to insurance companies to [Google (Nasdaq: GOOG)], this company is set to grow revenue and the bottom line. Add to this a lack of competition and high costs to compete, GeoEye is a relatively low risk growth company.

Shares of the satellite imagery specialist are up more than 57% since that call. In fact, yesterday's double-digit pop came after GeoEye swung to a fourth-quarter profit on healthy government sales and entered into a key financing deal with Cerberus Capital Management.

The bullish lesson?
Know when to break the rules. Emerging new fields are notoriously fraught with risk, but by buying into the clear "top dogs" with genuine game-changing prospects, you can reduce your downside substantially. Once that potential translates into visible earnings growth, the company's following (and stock price) will likely get a massive boost, too.

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

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

While yesterday's drop in five-star stock ATP Oil & Gas (Nasdaq: ATPG) may have caught our community off guard, low-ranked stocks are fully expected to fall hard.

Did CAPS call the fall?
About a year ago, for instance, CAPS member TradingBandit warned that Hot Topic looked ready to cool down: "High P/E plus inconsistent earnings history, selling dying fashion trends and overpriced compared to sector members. Recent rise is a short-squeeze and is worth around 5 bucks and is headed there soon."

Shares of the specialty teen retailer are down more than 50% since that warning. In fact, yesterday's loss came after the company's fourth-quarter profit dropped sharply as sales continued to disappoint.

The bearish takeaway?
Never confuse an improving price with improving prospects. If a company's underlying fundamentals continue to deteriorate, short-term bouts of exuberance can last for only so long. As Warren 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!