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

Our community of more than 165,000 CAPS Fools considers its high-star stocks the most likely to outperform the market.

Written in the (high) stars?
For example, only four days ago, CAPS member lemonades brought Mosaic's paltry price to our community's attention: "This stock looks close to bottoming out. Not only is the stellar price attractive to someone like me, a young investor, but [Mosaic] is supplying fertilizer to a market in which the demand is steadily increasing."

And late last month, lagunabb tapped Anadarko's Gulf spill-stressed stock as a tantalizing turnaround play: "Macondo well will be plugged soon, probably sooner than people in general expect. Also NG prices are very depressed. [Anadarko] is a good way to play both."

Of course, it's still early in the life of those calls, but the big surge in both Mosaic and Anadarko yesterday show just how powerful it can be to buy into stocks that have been beaten-down beyond reason.

The bullish lesson?
Always be on the hunt for 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 American Oriental Bioengineering may have caught our community off guard, low-ranked stocks are fully expected to fall hard.

Did CAPS call the fall?
In 2007, for instance, CAPS member mckeller7 urged Fools to stay away from Affymetrix:

1) Their product is inferior to the Illumina (Nasdaq: ILMN) chip. They got a very bad reputation when they released their 500K chip last year because over 1 out of 4 (!!) of the SNPs in there were garbage. ...

2) Much of their revenue comes indirectly from the government, via research grant funding in academia. ... Granted, [Affymetrix] makes money from private industry too, but one chunk of the income they could potentially tap into is dwindling.

Shares of the genetic testing technology company are down a whopping 83% since that call. In fact, yesterday's nasty 27% plunge came after the company cut its second-quarter revenue forecast, citing a weak euro and delayed capital equipment spending from its academic customers -- exactly as mckeller7 had warned.

The bearish takeaway?
Always identify a stock's risk exposures before they come back to haunt you. One of the most common mistakes we can make as investors is failing to see the dangerous things that lurk just around the corner. Unless you're willing to consider all of the possible ways your stock might get killed -- both in the short and the long run -- there's a good chance you'll wake up one day and get blindsided.

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!