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, such as low-rated DryShips (NASDAQ:DRYS). Stocks go up all the time, but unless you were able to predict the pop, what does it matter?   

Our community of more than 110,000 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 295 CAPS All-Stars who've rated Mueller Water Products, 97% have a bullish opinion. Fueled by that steady support, the Atlanta-based provider of water infrastructure products recently regained its five-star rating.

About two months ago, CAPS player PebbledShore touched on the low-priced opportunity that the shares were offering:  

Too cheap here below $8. This is one for the long-term. Legislators the country over will eventually get off their duffs and spend dollars on desperately needed upgrades and new projects and the housing market will eventually get back on track.

Mueller Water is up a nice 11% since that call.

The bullish lesson?
Learn to pounce on Mr. Market's short-sightedness. Turnaround stocks aren't always easy on the stomach, but if you truly believe in a company's long-term tailwinds, significant slowdowns are the best time to buy. As Warren Buffett once remarked, "Only for short-term investors and market timers is a correction not an opportunity."

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 highly rated Boeing (NYSE:BA) 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?
Just two days ago, for instance, CAPS player imobillic commented on Pyramid Oil's recent surge in share price:

This is the perfect example of the irrational speculators @ work. Show me one, just one good reason to justify this company shares price! Up two days in a row when oil price is stable and going maybe lower. Someone will make a lot of money with this trade. ... I bet it won't be the investors.

Thanks in large part to yesterday's plunge, shares of the California-based oil and gas company are already down 22% since that call.

The bearish takeaway?
Implicit in a company's stock price are very specific cash-flow assumptions. Therefore, one of the most important jobs you have as investor is to determine whether those assumptions are justified. As CAPS' imobillic understands, any company can pop in the short term, but if the expectations aren't rooted in economic reality, it's just a matter of time before your rocket stock "turns torpedo."

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!