Friday's Biggest Stock Stars

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

Without further ado:

There's a simple reason I selected the largest five-star gainers, as opposed to other big-name winners making noise on Friday, like Advanced Micro Devices (NYSE: AMD). Stocks go up all the time, but unless you were able to predict the pop, what does it matter?  

Our community of more than 81,000 CAPS Fools considers its five-star stocks the most likely to outperform the market. And so far, CAPS has indeed proved its market-beating prowess: Over the past year, top-rated stocks returned roughly 28%.

Written in the (five) stars?
For example, of the 211 CAPS players who've rated Himax Technologies so far, a mere three are bearish. And of the 38 All-Star Fools who've chimed in on the small-cap flat-panel semiconductor maker, only one has given the stock an underperform rating.   

This bull pitch -- by CAPS player TimmyTheGeek in late November -- helped bring Himax's low price to our Foolish community's attention:

Wish I found this one a month ago. Solid balance sheet; low p/e and p/cf; steady, if not spectacular projected growth. I think it's a keeper long term. Their products are in many different products, so not tied to the economic ups and downs on one particular item.

Himax is up a sweet 16% in the less than two months since that call.

The bullish takeaway? Always try to combine the best of both value and growth investing strategies. By seeking rapidly growing companies at cheap prices, you not only buy into a stock trading below its fair value today, but also own a business that can increase that value tomorrow. In fact, even with the jump, Himax still trades at a PEG of 0.48, so it's probably still worth checking out.

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

Here are Friday's biggest one-star decliners:  

One-star stocks inspire the least confidence from our CAPS players. So while Friday's drop in four-star stock McDonald's (NYSE: MCD) 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?
For instance, CAPS All-Star TheGarcipian posted this Standard Pacific bear call late last September:

The housing market will continue to slide thru Spring 2008. And there are all bad numbers here for this company. Negative growth, lots of debt (129% D/E ratio!), an inability (or unwillingness?) to offload inventory, very little cash (only $8M on a market cap of $356M) to support current expenditures. The stock has lost 75% of its value since June. I think we'll see more red, and soon.

Not surprisingly, the California-based homebuilder is down 61% since that pitch, with Friday's drop resulting from bankruptcy fears -- just as TheGarcipian had warned.

The bearish lesson? Not all stock drops represent bargain-basement opportunities. It's certainly beneficial to "be greedy when others are fearful," but only when investors are fearful for no good reason. When a company has as many frightening ratios as Standard Pacific has, it's easy to understand -- and agree with -- Mr. Market's super-spooked sell-off.     

The final Foolish move
Investors often focus strictly on stock price movements (or their 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 above all else. 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!