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 why I selected the largest five-star gainers, as opposed to other big-name winners making noise on Friday, like one-star real estate developer St. Joe (NYSE: JOE): Stocks go up all the time, but unless you were able to predict the pop, what does it matter?

Our community of more than 86,000 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 its first year, top-rated stocks returned roughly 28%.

Written in the (five) stars?
For example, out of the 159 CAPS All-Stars who've rated Hecla Mining, only three have a bearish opinion. On the strength of that top-notch support, the Idaho-based mining company recently regained a five-star rating.

This outperform pitch, by CAPS All-Star FoolforSilver one year ago, provides some "precious" insight into our community's thought process:

A great precious metals company with exposure to the rising price of gold, silver, and base metals. Reasonable P/E, fast growing revenues, this stock is a winner for the next five years.

Hecla Mining is up an outstanding 57% since that call. In fact, Friday's pop came after shareholders gave final approval to acquire sole ownership of Greens Creek silver mine in Alaska, roughly doubling expected silver production in the process -- consistent with FoolforSilver's optimistic view.

The bullish takeaway?
Learn to make money in metals. There are plenty of paths to investment heaven, and buying into well-managed, reasonably priced miners of precious metals has historically been an effective hedge against market downturns. As long as you're willing to stomach the inherent volatility of precious-metals prices, there may be a gold or silver lining out there for you, too.

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 although Friday's drop in five-star stock Cemex (NYSE: CX) may have caught our community off-guard, one-star stocks are fully expected to fall hard. In the first year, CAPS' lowest-rated stocks dropped an average of 16.6%.

Did CAPS call the fall?
It looks like CAPS players know their stuff. Late last January, for instance, CAPS All-Star GS751 pitched this rather uncanny bear call on Bear Stearns:

Bear Stearns has a Level 3 assets worth $27 billion, investments in SIVs [structured investment vehicles] of $41 billion, and off balance sheet SIVs of $21.3 billion. I believe they have understated the severity of the implications of their real estate exposure. They are lacking clarity in recent financial statements. ... Bear Stearns is going to be the star of the bears ...

Of course, shares of the venerable Wall Street investment bank went on to plummet nearly 50% on Friday after a cash crunch forced it to turn to the Fed and rival JPMorgan Chase (NYSE: JPM) for a massive emergency bailout -- exactly as CAPS' GS751 had warned.

Unfortunately for shareholders, but fortunately for GS751's bear call, shares are down another 90% this morning after last night's announcement that JP Morgan is picking up the company for a fire-sale price of $2 per share.

The bearish lesson?
Where there's smoke, there's often a blazing inferno. Like my Foolish colleague Tim Beyers pointed out early last week, Moody's downgrade of Bear Stearns' mortgage portfolio should have been a fairly clear sign of the firm's liquidity woes. As Tim and CAPS' GS751 demonstrate, it's far better to trust your own data and reasoning than to simply take a CEO at his word -- no matter how reassuring he might sound.

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, above all else, 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!