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 top ratings of four or five stars:

There's a reason I selected those notable gainers, as opposed to other winners making noise on Monday, like low-rated Ford Motor (NYSE:F): Stocks go up all the time, but unless you were able to predict the pop, what does it matter?  

Our community of more than 140,000 CAPS Fools considers its high-star stocks the most likely to outperform the market.

Written in the (five) stars?
For example, 93% of the 1,225 members who've rated Energy Conversion have a bullish opinion of the stock. Just last week, one of those Fools, smerlis, explained why the solar-panel product maker was finally starting to rise: "Hit its bottom in early Sept. Ready for a charge -- new international contract is good news. Stock is consistent with tone and direction of Washington."

With the help of yesterday's 15% pop, CAPS member smerlis is off to a nice start with the stock.

The bullish lesson?
When the shares of a quality company take a beating, always try to figure out why. If Mr. Market's punishment seems to make no sense, given the market's real long-term demand profile, it might be the perfect time to jump in. As Warren Buffett reminds us, "When investing, pessimism is your friend, euphoria the enemy."

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

Here are five of Monday's biggest decliners with one- or two-star ratings:  

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

Did CAPS call the fall?
Last month, for instance, CAPS member EquityBull warned Fools about bidding up for Baidu:

Baidu is overpiced here by any metric and valuation assumption. ... Also one analyst has stated (and probably correctly) that up to 80% of Baidu's traffic is MP3 (illegal) searches. With Chinese gov't cracking down they stand to lose some or all of this traffic which would be a huge blow to their revenue and traffic.

Consistent with that bearishness, shares of the Chinese search giant sank yesterday after a Wall Street analyst downgraded the stock on a forecast of less-than-stellar results for the upcoming quarter.

The bearish takeaway?
Never mistake a wonderful business for a wonderful stock. As CAPS' EquityBull understands, even the greatest of companies can disappoint Mr. Market if its valuation already reflects much of that greatness. As Buffett says, "Investors making purchases in an overheated [stock] need to recognize that it may often take an extended period for the value of even an outstanding company to catch up with the price they paid."

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 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!