Wednesday's Biggest Stock Stars

Hey there, Fools. I've summoned our Motley Fool CAPS community once again to highlight yesterday's biggest gainers among the 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 Wednesday -- like Vonage and LDK Solar (NYSE:LDK) -- 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?
For example, for Foster Wheeler, the engineering and construction giant, more than 304 All-Star players have picked it to outperform, while a measly six have been bears. On the strength of that Foolish support, Foster Wheeler has consistently kept a five-star rating over the past six months.

This outperform pitch -- pulled from Foster Wheeler's CAPS page -- gives us peak into our community's "red-hot" reasoning:

This stock is on fire and still trades at a discount to its peers. They continue to grow backlog and if their power division meets expectations they could continue to smash estimates. Global infrastructure is still a good market and [Foster Wheeler] will be a leader over the next year or two.

When CAPS player PartyMDK made that call back in late May, Foster Wheeler was already up a monstrous 118% over the previous year. Yet since then, the stock has managed to run up another 50%. In fact, yesterday's surge came after management reported third-quarter earnings that were way above Wall Street's forecasts.

The bullish takeaway? Just because a stock has skyrocketed in price, that doesn't necessarily make it expensive. If a company's intrinsic value is actually growing faster than its share price, there's really no reason why the stock shouldn't continue to climb. As always, focus on the fundamentals -- not on the charts.

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 Wednesday's drop in Garmin (NASDAQ:GRMN) and Expeditors International 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 iMergent underperform pitch by CAPS player rjd76:

I thought this one looked exciting at first -- pays a dividend, no debt, low PE, solid performance, and small number of shares outstanding. Then I looked into the bears' take on IIG. The BBB [Better Business Bureau] report on them was somewhat alarming. My guess is that IIG will perform over the near term, but its success will eventually unravel.

iMergent, which provides e-commerce technology and training, is down 34% since that call in June. In fact, yesterday's massive 22% fall came after the company reported a first-quarter loss of $800,000, compared with a $2.3 million profit from the previous year.

The bearish lesson? Always get the story behind the numbers. Though the quantitative side of investing is important, it's often the qualitative factors -- like management's character, the durability of its competitive advantages, and the corporate culture -- that can make or break an investment. Remember: If a company's financial and valuation ratios seem too good to be true, there's a good chance that they are.

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!