Wednesday'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:

There's a simple reason I selected the largest five-star gainers, as opposed to other big-name winners making noise on Wednesday, like low-rated 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 95,000 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, of the 201 CAPS players who've rated aero-structures manufacturer Spirit AeroSystems, more than 95% have a bullish opinion. Fueled by that Foolish support, the Kansas-based Boeing (NYSE: BA) supplier has kept a four- or five-star rating for more than six months straight.

One month ago, CAPS player Valuevest shared some thoughts on Spirit's nose-diving stock price:  

Taking a hit for boeing loss of airforce contract which is stupid as SPR is the producer for the airbus fuselage for the plane that won the airforce contract. ... The price is hurt by delays in A380 and 787 both of which rely on spirit as a major supplier. As soon as one or both of those ramp up production, SPR should go thru the roof.

Spirit AeroSystems is edging the market since that call. In fact, yesterday's pop came after Boeing announced a shorter-than-expected third delay for its 787 Dreamliner -- consistent with Valuevest's outperform pitch.   

The bullish takeaway?
Pay attention to stocks positioned in the value chain of highly anticipated products. As Valuevest demonstrates, you don't necessarily have to buy the behemoths producing the finished good. Sometimes, investing in the smaller, less-followed -- and, therefore, cheaper -- suppliers can be a better way to play.

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

Here are Wednesday's biggest one-star decliners:   

One-star stocks inspire the least confidence from our CAPS players. So although yesterday's drop in five-star stock Aluminum Corp. of China (NYSE: ACH) 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?
Two weeks ago, for instance, CAPS All-Star thebigjiggacommented on the run that Radian Group's shares were making: "Stock up 35% in two days, wow. This idiot's rally will be painful. This is a broken sector and will not recover for a LONG time."

Not surprisingly, the Philadelphia-based mortgage insurer is already down 20% since that call. In fact, yesterday's drop came after Standard & Poor's cut its financial rating (as well as those of three other major insurers), citing the strong possibility of continued mortgage defaults in the face of a struggling economy -- right in line with thebigjigga's take.  

The bearish lesson?
Never confuse a two-day pop for a multiyear trend. As thebigjigga understood, if a company's underlying fundamentals continue to deteriorate, short-term run-ups can be sustained for only so long. As Benjamin Graham said, "In the short run, the market is a voting machine, but in the long run, it is a weighing machine."

The final Foolish move
Investors often focus strictly on stock price movements 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, 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!