Tuesday's Biggest Stock Stars

We at the Fool usually don't pay attention to day-to-day price gyrations. We prefer to track each business's intrinsic value, which, by its very nature, changes a lot less frequently than Mr. Market's wild swings would have you believe.       

But some price moves are just so big that investors should at least take notice -- especially when we Fools could have seen them coming.  

The big winners
With that in mind, I've summoned our Motley Fool CAPS community to highlight yesterday's biggest gainers among the stocks with a top rating of five stars.

Without further ado:

The reason I selected the biggest five-star gainers, as opposed to some of the largest overall winners -- like Robbins & Myers (NYSE:RBN) and E.W. Scripps (NYSE:SSP) -- is simple: Stocks go up all the time, but unless you were able to predict the pop, what does it matter?

Through a consensus of more than 65,000 Fools in CAPS, our community considers its five-star stocks the most likely to outperform the market. By reverse-engineering some of the arguments made for these picks, our odds of finding the next big winner will surely improve.  

Did CAPS predict the pop?
For example, Quintana Maritime, a dry bulk shipper based in Greece, has outperform ratings from 117 CAPS All-Stars, while a measly two have been bears. Also, all five Wall Street firms covering Quintana -- whose picks we track on CAPS -- have also given the stock a thumbs-up.     

This outperform pitch, written by CAPS player palosea last February, gives a general idea of what grabbed our community:  

OK, so it's boring. A dry bulk shipper that currently pays around 7% dividend (now at 5.20%). Stock goes up when market goes down. Stock goes up when oil goes up. In a general uptrend and just raised the dividend. I believe one can be rewarded for holding on.

Since that call, Quintana is up an incredible 105%, not to mention returning 158% year over year.

The bullish takeaway? Boring dividend-paying stocks don't necessarily mean boring returns. Buying into growing, financially strong, and, most importantly, well-managed dividend-paying companies is actually one of the proven ways to beat the market.

In fact, yesterday's pop came after the company announced that, in light of the recent appreciation of dry bulk assets, it would begin seeking alternatives to unlock even more shareholder value. Now that's what I call a Fool's dream of a management team.     

Now for the losers
Of course, winning isn't everything in the stock market. Stocks go down, too -- and often very, very fast.

Here are yesterday's biggest one-star decliners:   

One-star stocks inspire the least confidence from our CAPS community. By investigating a few of the bearish arguments made for these losers, we'll have a better chance of averting portfolio disaster in the future.   

Did CAPS call the fall?
Take, for instance, this Spectrum Brands underperform pitch written just three months ago:  

Look at their debt! They have $2.66 billion in debt, and a $302 million market cap. [W]ith that much debt, they better have good cash flow ... so I look at their cash flow ... NEGATIVE. Not only that, but they are losing more and more money every year, and taking on more debt. [T]hat, my Fools, is a recipe for disaster. Underperform.

Spectrum Brands, a consumer goods company (it makes batteries, lawn and garden items, and grooming items, among other things), is down 15% since CAPS All-Star Prodigy16 penned that pitch, and down a depressing 53% year over year.

The bearish lesson? Beware of highly leveraged companies -- especially if they don't necessarily have the competitive strength (and the cash flows that come with it) to get away with excessive debt. Out of the many warning signs investors should look for, one of the more horrific combinations is a massive debt load coupled with negative cash flow.   

The final Foolish move
Investors often focus strictly on stock price movements (or the results), without realizing that developing a proper stock-picking process counts the 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 become a more Foolish investor.

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