Tuesday's Biggest Stock Stars

Hey there, Fools. I've summoned our Motley Fool CAPS community once again to highlight yesterday's biggest gainers among stocks with a top rating of five stars.

Without further ado:

The reason I selected the largest five-star gainers, as opposed to other big-name winners making noise on Tuesday -- like XM Satellite Radio (NASDAQ:XMSR) and Nortel Networks -- is simple. Stocks go up all the time, but unless you were able to predict the pop, what does it matter?  

Our community of more than 73,000 Fools in CAPS considers its five-star stocks the most likely to outperform the market.

Written in the (five) stars?
Oil and natural gas producer Comstock Resources, for example, very recently received its first-ever five-star rating. Though the Texas-based firm still has a relatively small CAPS following, 25 of the 26 All-Stars who've rated the stock are bullish.

This outperform pitch -- by CAPS player DanWYorkshire back in late May -- gave our community a couple of strong points to consider:

I like CRK for two reasons (1) it holds 49% of [Bois d'Arc Energy (NYSE:BDE)] and (2) production [is] going up in their onshore East Texas drilling program. Look for EPS to crush the First Call estimates for several quarters to come.

Comstock is up a sweet 29% since that call, and 40% higher year over year. In fact, yesterday's 13% pop came after the company reported third-quarter earnings that blew away Wall Street's estimates. You know, just like DanWYorkshire had predicted.

The bullish takeaway? In order to outperform over the long haul, it's not enough for your companies to just do "well" -- they need to do better than what Wall Street is forecasting. So take the time to figure out the expectations being built into a stock's price, and then carefully assess whether or not they make sense. By consistently buying stocks where the bar is being set unreasonably low, you should enjoy plenty of good earnings surprises ahead.  

A little love for the losers ...
Of course, winning isn't everything in the stock market. Here are yesterday's biggest one-star decliners:  

One-star stocks inspire the least confidence from our CAPS players. So while Tuesday's massive drop in Cognizant Technology (NASDAQ:CTSH) may have caught some investors off guard, our community fully expects one-star stocks to fall -- and fall hard.

Did CAPS call the fall?
Take, for instance, this bearish Biolase Technology pitch by my colleague and CAPS legend Seth Jayson -- otherwise known as TMFBent:

Wish I'd never closed my red thumb on this pile of junk. I know many dentists and they all agreed that what Biolase is selling them offers little to zero return on investment. That's why this crummy company has killed so many investors for so long. Look for things to get worse. They're shuffling the deck chairs on the [T]itanic, but that won't make 'er float.

The California-based dental laser company is down a depressing 56% year over year, and off 72% from the 52-week highs it set last April. In fact, Seth penned that pitch right in the midst of yesterday's mammoth 47% sell-off -- sparked by Biolase's third-quarter loss of $3.5 million and the departure of its CEO Jeffrey Jones.

The bearish lesson? Never forget the basics. The objective of a business is to provide a much-needed product or service in order to generate a substantial profit for its owners. If the first part of that equation doesn't even hold -- that is, if the company fails to meet the needs of clients -- chances are it won't meet the needs of its shareholders, either.

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 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 and start participating. It's absolutely free -- and a lot of fun!