Monday's Biggest Stock Stars

Hey there, Fools. I've summoned our Motley Fool CAPS community once again to highlight a few of Monday'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 Monday, like low-rated Las Vegas Sands (NYSE:LVS). Stocks go up all the time, but unless you were able to predict the pop, what does it matter?  

Our community of more than 125,000 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 after its inception in late 2006, five-star stocks beat the market by 12 points, annualized.

Written in the (five) stars?
For example, 96% of the 137 All-Stars who've rated Clean Energy Fuels have a bullish opinion of the stock. Last month, member TSIF explained why the natural gas and alternative fuel provider seemed like a natural selection:

Slow growth for now, in this irrational market, (but then again, is it ever rationale?), but they will be in the "cat's seat" when oil goes back up as the dollar starts to devalue. Their positioning will put them "miles" ahead on clean fuel and natural gas.

Shares of Clean Energy are up more than 50% since that call.

The bullish lesson?
Just because your stock is doing a nosedive doesn't mean it's destined to crash. As long as your long-term investment thesis still holds, it's crucial that you hang tight, stay cool, and allow your "wager" to play out regardless of how ugly the chart looks. As CAPS' TSIF understands, the time of maximum frustration is precisely the point when good stocks are priming to pop.

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

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

While yesterday's massive plunge in highly rated Verizon Communications (NYSE:VZ) may have caught our community off-guard, one-star stocks are fully expected to fall hard: Over the first 20 months after CAPS started, one-star stocks dropped an average of 11.4%, annualized.

Did CAPS call the fall?
Just yesterday, for instance, TSIF (once again) shared these bearish thoughts on Talbots:

Founded in 1947, nice company, good brand name......it's too bad it doesn't look like it will survive. Insiders getting out at sub-$3, none getting in. ... Even a better than expected holiday season will not generate sufficient cash flow to cover the debt load. Certainly at a minimum dividends are at risk that will send a signal to the market that they won't ignore. ... I'm hoping for you Talbots, but I have to bet against you.

Of course, with yesterday's drop, TSIF was edging the market since that call.

The bearish takeaway?
Always keep an eye on the insiders. Now, it's true that insiders may sell for reasons that have nothing to do with their outlook on the business. But when the fundamentals are deteriorating, heavy insider selling can very often cement your bear case. With Talbots, for example, insider selling turned out to be a good sign of bad things to come.

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!

On Jan. 12, 2009, Fool co-founder David Gardner, Jeff Fischer, and their Motley Fool Pro team will accept new subscribers to their real-money portfolio service. Motley Fool Pro is investing $1 million of the Fool's own money in long and short positions in a range of securities, including common stocks, put and call options, and exchange-traded funds (ETFs). They also incorporate proprietary CAPS "community intelligence" data into their research. To learn more about Motley Fool Pro and to receive a private invitation to join, simply enter your email address in the box below.