Tuesday's Biggest Stock Stars

Hey there, Fools. I've summoned our Motley Fool CAPS community once again to highlight Tuesday'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 Tuesday, like one-star stock Pacific Ethanol (NASDAQ:PEIX). Stocks go up all the time, but unless you were able to predict the pop, what does it matter?

Our community of more than 105,000 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 its first year, top-rated stocks returned roughly 28%.

Written in the (five) stars?
For example, out of the 180 CAPS All-Stars who've rated oil and natural gas company Continental Resources, only four have a bearish opinion. Fueled by that Foolish support, the largest leaseholder in North Dakota's Bakken shale has kept a four- or five-star rating for more than six months straight.

One month ago, CAPS player YeahBuddy79 touched on Continental's possible Bakken bonanza:

You can and should search for more reports about the Bakken oil field but here is a quick break down. It is estimated to have over 400 Billion barrels of oil. You should be a little skeptical at this point but the field is over 3 states and into Canada (note: huge means huge). The mining would most likely be in the North Dakota area Northeast in the top corner.

Continental is already up a whopping 50% since that call. In fact, yesterday's 23% pop came after the company reported stronger-than-expected drilling results at its first well in the shale -- consistent with YeahBuddy79's take.

The bullish lesson?
Always have a thorough understanding of what your company owns (or leases). By carefully breaking down the risks and rewards of a company's pipeline, you'll be ahead of most investors in estimating what the stock is worth. Sometimes, Wall Street fails to discount the massive potential lying within a company's reach, which can add some attractive "optionality" to the valuation.

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

Here are Tuesday'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 China Mobile (NYSE:CHL) 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?
A couple of months ago, for instance, CAPS player InvestmentBiker2 commented on American Axle's ongoing labor troubles:

American Axle & Manufacturing is currently on strike due to UAW (United Auto Workers) issues with wages and benefits. [American Axle] is a major supplier to [General Motors] (NYSE:GM), and you have seen where the US auto market is headed.... As the US slides into a recession, you will see [American Axle] sales and profits sink ... along with its stock price.

Consistent with that call, shares of the driveline component supplier continued to slide for a second straight day, as the company's workers began voting on a labor agreement that could possibly end the three-month-old strike.

The bearish takeaway?
Learn the pros and cons of buying businesses with unionized workers. Investing in cyclical businesses during major downturns is tricky enough as it is, but when profits are also pressured by expensive labor disagreements, that's a double whammy your portfolio can do without. Of course, management teams who treat their employees with fairness and respect, union or not, will always provide the best background for a solid investment.

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, 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!