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 four or five stars.

Without further ado:

There's a reason I selected those notable gainers, as opposed to other winners making noise on Thursday, such as one-star stock Palm (NASDAQ:PALM). Stocks go up all the time, but unless you were able to predict the pop, what does it matter?  

Our community of more than 130,000 CAPS Fools considers its "high-star" stocks the most likely to outperform the market.

Written in the (five) stars?
For example, 96.3% of the 2,319 members who've rated Exelixis have a bullish opinion of the stock. Last week, one of those Fools, DepthMigration, had some big things to say about the small-cap biotech:

Extraordinary pipeline relative to company size. Typical startup biotech in terms of finances, but joint ventures smooth the ride. High risk, extremely high potential reward.

Consistent with that call, shares of Exelixis surged yesterday after inking yet another cancer drug development partnership -- this time with sanofi-aventis (NYSE:SNY) -- that could potentially be worth more than $1 billion.

The bullish lesson?
The most important job you have as an investor is to quantify a stock's upside and downside. At the very least, you should always make sure you're being compensated appropriately for the risks you're taking on. If a stock's potential payoff seems generous compared to the chance of loss -- as DepthMigration surmised with Exelixis -- it's best to take Mr. Market up on his offer.

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

Here are five of Thursday's biggest decliners with a one- or two-star rating:   

While yesterday's drop in highly-rated Terex may have caught our community off-guard, low-ranked stocks are fully expected to fall hard.

Did CAPS call the fall?
Late last year, for instance, CAPS All-Star Joker1001 recorded these bearish thoughts on TiVo:

Go to any electronics store and look at how many Tivo's are sitting around. People are using cable and satellite-based [digital video recorders]; they're cheaper, as easy to use, and are HD friendly. Digital transition in 2009 won't make much of a difference, if you've got a 25-year-old TV the last thing you're going to buy is a DVR.

Consistent with that warning, shares of TiVo dropped yesterday after posting a first-quarter loss of $4.1 million on sagging revenue.

The bearish takeaway?
Never underestimate the protection that a strong competitive edge provides. Without a meaningful advantage, businesses are constantly exposed to the ravages of competition, especially low-cost alternatives. As Warren Buffett reminds us, "The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage."

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!