Thursday's Biggest Stock Stars

Hey there, Fools. I've summoned our Motley Fool CAPS community once again to highlight Thursday'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 Thursday, like low-rated Research In Motion (Nasdaq: RIMM). Stocks go up all the time, but unless you were able to predict the pop, what does it matter? 

Our community of more than 83,000 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, each of the 40 CAPS All-Stars who've rated ProCentury are bullish. That strong Foolish support prompted me to highlight the specialty insurer as a micro-capped bargain last November.

This outperform pitch, by CAPS player movinonnon in August, adds additional insight into our community's logic:

Built book value by 17.4% in the first six months of this year, six-month operating cash flow >10% of total market cap. P/B on low side for insurers. Even with major hurricanes in past years, positive annual net income in all previous six years. Insiders bought in last year at $14-$15. How many more reasons do you need?

ProCentury is up a whopping 45% since that call. Of course, a huge chunk of that gain came yesterday after Meadowbrook Insurance Group (NYSE: MIG) agreed to acquire it for $272.6 million in cash and stock -- roughly a 30% premium to ProCentury's Wednesday closing price.  

The bullish takeaway?
Focus on the factors that count. Just like our team at Motley Fool Hidden Gems does every day, CAPS' movinnon singled out a high-return, undervalued small cap (with insider buying to boot!) and earned great results in the process. Remember, all sorts of things can keep a stock down in the short term; the key is to concentrate on the variables that stack the odds in your favor over the long haul.

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 five-star stock Shengdatech (Nasdaq: SDTH) 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?
Late last September, for instance, CAPS player profishunt shared these bearish thoughts on PGT:

Demand for all products decreasing due [to] slow down in new construction, lack of hurricanes and quality issues. Stiff competition from Jeld-Wenn, Simonton, Pella, and Anderson. Decrease in sales may reach 5 year low.

Not surprisingly, shares of the manufacturer of impact-resistant windows and doors are down 61% since that call. In fact, yesterday's double-digit drop came after PGT  management reported a greater-than-expected fourth-quarter loss, as sales continued to slump in the rough housing market -- just as profishunt had warned.

The bearish lesson?
Struggling sectors never operate in isolation. Therefore, it's critical to always be aware of the industries that directly affect your company. If just one of your stocks happens to be highly leveraged to a sector in crisis -- like housing, in the case of PGT -- your portfolio may be in for an unwelcome surprise.

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, tens of 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!