Thursday's Biggest Stock Stars

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:

The reason I selected the largest five-star gainers, as opposed to other big-name winners making noise on Thursday -- like Dendreon (NASDAQ:DNDN) -- 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 77,000 CAPS Fools considers its five-star stocks the most likely to outperform the market. And so far, CAPS has indeed proven its market-beating prowess: Over the last year, top-rated stocks have returned roughly 28%.

Written in the (five) stars?
For example, out of the 188 CAPS All-Stars who've rated Motley Fool Rule Breakers recommendation BioMarin Pharmaceutical, a mere three are bearish. Of course, the stock's 64% return since it was picked by our team for last June's issue doesn't exactly leave too much to frown about.

This top bull pitch -- by All-Star and Rule Breaker team member TMFBreakerJava late last September -- proved to be a sure sign of good things to come:

With Kuvan in line to be reviewed soon by the FDA, and very positive phase III results, the likelihood is high that approval will be secured for this treatment for Phenylketonuria (PNU). This will give Biomarin a third highly profitable drug on the market.

In a landscape littered with high risk situations, Biomarin stands out as a biotech
with a high degree of predictability and the prospect of profits for years to come.

BioMarin is up 21% since that call. And as BreakerJava correctly forecast, yesterday's pop came after the FDA indeed granted approval for Kuvan, which management expects to generate between $35 million and $70 million in 2008 revenue.

The bullish takeaway? It pays to know your pipeline. With investing, there's no substitute for seeing past all the "surface" ratios, doing your homework, and figuring out the real risk profile of a company's potential products. By continuously betting on high-probability, high-reward propositions -- which can only be found with thorough research -- beating the market is almost certain.

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

Here are Thursday's biggest one-star decliners:   

One-star stocks inspire the least confidence from our CAPS players. So while yesterday's drop in four-star stock Fuel Tech (NASDAQ:FTEK) may have caught our community 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 Midway Games underperform pitch -- by CAPS All-Star esxokm -- in August of 2006:

Midway Games should benefit from the upcoming new-console cycle in the videogame sector ... but will it benefit like Activision, Electronic Arts (NASDAQ:ERTS), and THQ will? I doubt it.

If you look at the past performance of this company from an earnings/cash flow basis, you will see that it is terrible. ...

Go for the blue-chip software publishers instead.

The Chicago-based video game publisher is down a depressing 65% since that call.

The bearish lesson? Never become anchored to a particular stock. Regardless of how much you think a company will benefit from a specific tailwind, there's a good chance you'll be able to find an even better way to play. By swinging only at the fattest of pitches - whether based on competitive advantage, price, management, or whatever -- your odds of hitting those investment home runs increase dramatically.

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!