Thursday's Biggest Stock Stars

Hey there, Fools. I've summoned our Motley Fool CAPS community once again to highlight a few of Thursday's biggest winners among the stocks with a top rating of five stars.

Without further ado:

There's a reason why I selected notable five-star gainers, as opposed to other big-name winners making noise on Thursday, like one-star airline stocks US Airways (NYSE:LCC) and UAL. Stocks go up all the time, but unless you were able to predict the pop, what does it matter?  

Our community of more than 115,000 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: In the first 20 months since its inception in late 2006, five-star stocks beat the market by 12 points, annualized.

Written in the (five) stars?
For example, 95% of the 264 CAPS All-Stars who've rated Apache have a bullish opinion of the stock.

Just last week, All-Star aracer explained why the oil and natural gas producer seemed fit for a burglar:

Call the police. I am stealing this stock. Trading near 52 week low, Apache's key statistics show enhanced performance inversely proportional to its PPS since its June high. ... Revenues look good with quarterly revenue growth yoy pegged at 58%. As an energy play in oil and gas (reserves located mostly in N America), this company is perfectly positioned to prosper from world and U.S. growing energy demands.

With the help of yesterday's surge, shares of Apache are edging the market since that call.

The bullish lesson?
Never let a stock chart dictate your investment decisions. Like CAPS' aracer understands, a stock should always be assessed on how cheap (or expensive) it is relative to its future prospects, regardless of what the price has done in the past. As Warren Buffett has indicated, Mr. Market is your servant, not your master.

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

Here are five of Thursday's biggest one-star decliners:  

While yesterday's drop in highly rated gold stocks Kinross and Barrick (NYSE:ABX) may have caught our community off guard, one-star stocks are fully expected to fall hard: Over the 20 months since CAPS started, one-star stocks dropped an average of 11.4%, annualized.

Did CAPS call the fall?
In early April, for instance, CAPS member indian121212 made this rather prescient prediction about CIT Group:

Poor Balance sheet. High debt ratio. Poor performance in the next 12 months. May even cut its divident.

Not surprisingly, shares of the commercial lender are down 75% since that call. In fact, yesterday's drop came after CIT said its quarterly loss widened to $317.3 million, and Moody's responded by putting the company's ratings on review for a possible downgrade.

The bearish takeaway?
Always identify a stock's risk exposures before they come back to haunt you. One of the most common mistakes we make as investors is not paying close enough attention to a company's financial position (or what it actually owns and owes). Unless you can reasonably conclude that a company will remain intact even under the worst of scenarios, investing in overleveraged balance sheets just isn't worth the headaches.

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!