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

Without further ado:


Yesterday's % Gain

GrafTech International (NYSE:GTI)


Exelixis (NASDAQ:EXEL)


Vaalco Energy


Amtech Systems


Universal Stainless & Alloy Products (NASDAQ:USAP)


The reason I selected the largest five-star gainers, as opposed to other big-name winners making noise on Wednesday -- like tech stocks Oracle (NASDAQ:ORCL) and Intel -- 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 76,000 CAPS Fools considers its five-star stocks the most likely to outperform the market. And so far, CAPS has indeed proven its predictive prowess: Over the last year, top-rated stocks have returned roughly 28%.

Written in the (five) stars?
For example, all 88 CAPS All-Stars who've rated graphite electrode maker GrafTech International are bullish. And on the back of that Foolish support, GrafTech has maintained a five-star rating for the last three months straight.    

This bull pitch -- by CAPS All-Star timefordough in late April -- identified a pair of important points for the community:

GTI has just finished paying off antitrust fines issued from the Dept of Justice. These payments (last one of $5.1 million) have weighed heavily on the EPS, which should see an increase just from this relief. There is new competition for electrodes from India and China but GTI has a pretty solid book at least for 2007. Add in the $2 million grant for fuel cell development and you have two reasons to like it.

GrafTech is up 84% since that call, and has returned a whopping 150% over last year.

The bullish takeaway? Always try to get the full story behind the numbers. Sometimes, a few temporary charges can make a company's bottom line look far worse than it really is. By buying into those situations well ahead of Wall Street, the investor stands to profit when the company finally gains relief and starts to show its "true" operating colors. 

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

Here are Wednesday's biggest one-star decliners:   


Yesterday's % Loss





Valence Technology


Hoku Scientific (NASDAQ:HOKU)


R.H. Donnelley


One-star stocks inspire the least confidence from our CAPS players. So while yesterday's massive drop in four-star stock First Marblehead (NYSE:FMD) may have caught some Fools off-guard, one-star stocks are fully expected to fall hard. Over the last year, CAPS' lowest-rated stocks dropped an average of 16.6%.

Did CAPS call the fall?
Take, for instance, this MBIA underperform pitch -- by CAPS All-Star Allstar13913 -- last August:

This company is heavily exposed to the subprime mortgage market through the mortgage insurance it offers to borrowers.

From its own website, it is exposed to 5.1 billion in subprime mortgages as of June 30. I believe many of those mortgages will head south, and this company will be left footing the bill.

In the near term this will lead to severe underperformance.

Shares of the New York-based specialist bond insurer have fallen a gut-wrenching 54% since that call. In fact, yesterday's drop came after Moody's warned that it would likely face a capital shortfall, possibly putting its triple-A credit status at risk in the process.

The bearish lesson? 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 not paying close enough attention to a company's financial position. Unless you can honestly conclude that a company will remain intact even under the worst of scenarios, investing in overleveraged balance sheets (with tons of unknown exposures) just isn't worth the headaches.

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!

First Marblehead is a Motley Fool Hidden Gems recommendation. Exelixis is a Rule Breakers pick. Intel was chosen to appear in Inside Value.

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. The Fool's disclosure policy is always the big winner.