Wednesday's Biggest Stock Stars

Hey there, Fools. I've summoned our Motley Fool CAPS community once again to highlight a few of Wednesday'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 Wednesday, like low-rated Netflix (NASDAQ:NFLX). 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 847 members who've rated Israeli wireless broadband company Alvarion have a bullish opinion of the stock. Last year, one of those Fools, MoneyJungle1, offered up this particularly prescient pitch:

Leader in WiMax technology, the next step from Wifi. Think 30 miles vs 30 meters. … they are getting lots of contracts in the 3rd world emerging markets where it’s not worth while for the big dogs to go. They are creating lots of small steady revenue streams that are adding up. … A big contract in the 1st world could kick this stock up to the big leagues.

Consistent with that call, shares of Alvarion surged for the second straight day yesterday after the company officially confirmed a five-year contract win from U.S. broadband wireless operator Open Range Communications worth more than $100 million.

The bullish lesson?
Pay attention to small stocks that make a habit of landing big deals. As MoneyJungle1 understands, just a couple of major contract wins can have a huge impact on a small business, so focus on the market leaders with massive trends working in their favor. If those tailwinds are strong enough, blockbuster deals will probably keep blowing in that company's direction.

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

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

While yesterday's drop in highly rated agriculture stocks PotashCorp (NYSE:POT) and Mosaic may have caught our community off-guard, low-ranked stocks are fully expected to fall hard.

Did CAPS call the fall?
Late last month, for instance, CAPS member kakkineni urged our community to sprint from Sprint Nextel:

Economic cash flows (once cost of capital is accounted for) are declining. Low returns on invested capital. Low to negative economic book value (meaning high growth is reflected in current pricing -- in a very competitive and increasingly commoditized industry).

After yesterday's drop, shares of Sprint are lagging the market by 8.5% since that call.

The bearish takeaway?
Learn to focus on return on capital, not earnings per share. With all of the market's day-to-day noise, it's easy for Fools to forget that businesses exist for one basic purpose: to take money from investors and generate a return on it. As Warren Buffett once said, "[T]he best business to own is one that over an extended period can employ large amounts of incremental capital at very high rates of return." Buffett continues: "The worst business to own is one that must, or will, do the opposite -- that is, consistently employ ever-greater amounts of capital at very low rates of return."

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!