Tuesday's Biggest Stock Stars

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

Without further ado:

There's a reason why I selected those notable gainers, as opposed to other winners making noise on Tuesday, like low-rated STEC. Stocks go up all the time, but unless you were able to predict the pop, what does it matter?  

Our community of more than 135,000 CAPS Fools considers its "high-star" stocks the most likely to outperform the market.

Written in the (five) stars?
For example, 97% of the 840 members who've rated Alvarion have a bullish opinion of the stock. Late last year, one of those Fools, WiMAXPro, reminded Fools that the price was falling to levels not seen since 2002. Here's an excerpt:

As was the case then, Alvarion traded all the way down to a discount to cash value. This time around, the course of technology development that Alvarion has pursued, which has become WiMAX, is much more substantially developed and proven. ... Altogether, we may see bear market rallies but the stock is in for a ride on rough market seas over the next year or three. Long term, this will likely prove to be a great time to patiently accumulate shares.

After yesterday's 15% jump, shares of the wireless broadband company are beating the market nicely since that call.

The bullish lesson?
Learn to embrace the bargains that only bad news can provide. Like CAPS' WiMAXPro understands, innovative small caps with inevitable trends in their favor often move higher well before the economy or sentiment turn, so it's important to load up while there's still blood in the streets. As Warren Buffett recently wrote, "[I]f you wait for the robins, spring will be over."

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

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

While yesterday's drop in highly-rated Freeport-McMoRan (NYSE:FCX)may have caught our community off-guard, low-ranked stocks are fully expected to fall hard.

Did CAPS call the fall?
In late April, for instance, CAPS member Stromprophet warned our community that Best Buy wasn't exactly the best of buys:

The retail game has changed. Brick and mortar stores are becoming dinosaurs. ... Amazon's (NASDAQ:AMZN) model is the future. ... My main disagreement is the price ... it's doubled since it bottomed and that's just not sustainable in a volatile market. ... Consumers aren't buying more … [Best Buy] has not produced a year-over-year increase in earnings for the last 3 quarters ... by all signs earnings are not rebounding.

Consistent with that skepticism, shares of the electronics retailer sank yesterday after posting a quarterly profit decline of 15% and issuing lower-than-expected guidance for the rest of the year.

The bearish takeaway?
Never confuse a rising price for a recovering business. As long as a company's underlying fundamentals continue to deteriorate, short-term, emotionally charged run-ups can last for only so long. By doing your own homework and ignoring Mr. Market's current opinion, you give yourself a better chance of coming to a more 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!