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 Nortel Networks (NYSE:NT). 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 since its inception in late 2006, five-star stocks beat the market by 12 points, annualized.

Written in the (five) stars?
For example, 97% of the 233 All-Stars who've rated Motley Fool Rule Breakers pick Mindray Medical have a bullish opinion of the stock. Late last week, one of those members, mrindependent, gave our community a Foolish heads-up to the stock's recent decline:

Now is a good time to buy this premiere player in the Chinese medical devices market. This company was pummeled today after an analyst downgraded it on the grounds that hospitals will reduce spending this year.

Mindray is already beating the market by 24.8 points since the call. In fact, yesterday's pop came after the company said it expects a sharp increase in revenue and earnings for fiscal 2008.

The bullish lesson?
Learn to pounce on Mr. Market's short-sightedness. Going against the herd isn't always easy on the stomach, but if you truly believe in a company's long-term tailwinds, a gloomy consensus can offer the very best investment values. 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 five of Monday's biggest one-star decliners:  

While yesterday's plunge in highly rated Level 3 Communications (NASDAQ:LVLT) 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?
Last week, for instance, CAPS All-Star TheGarcipian (with the help of another top-rated member, TMFDeej) reiterated some very bearish beliefs on Fortress Investment Group:

After a 49.6% jump in price yesterday, I'm redowning on this one again. I still think this one could go to zero, and certainly below $1.25 again. Here's my original pitch:

I'm going with TMFDeej's excellent rant on how "these guys are going to get absolutely destroyed when scared investors come looking to get their money back", shown here. ... I couldn't agree with him more. Thumbs down.

After yesterday's plunge, shares of the asset manager were down 24% since that call.

The bearish takeaway?
Never confuse an improving stock price for improving fundamentals. As long as a company's underlying economics continue to deteriorate, short-term, speculation-driven run-ups can be sustained for only so long. By doing your own homework and ignoring Mr. Market's mood swings, like TheGarcipian demonstrated, you give yourself a better chance of coming to an objective and realistic view of a company's risk/reward profile.

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!

Beginning Jan. 12, 2009, Fool co-founder David Gardner, Jeff Fischer, and their Motley Fool Pro team are accepting 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.