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 top ratings of four or five stars:

There's a reason I selected those notable gainers, as opposed to other winners making noise on Tuesday, like one-star stock Vonage Holdings: 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, 95.6% of the 742 members who've rated Patriot Coal have a bullish opinion of the stock. In late April, one of those Fools, devilinside, seemed pretty stoked about the dusty black stuff:

Steel can't be produced without it. ... [Patriot] Coal is poised to go far once this economy turns around. They seem to have their debt under control and enough cash flow to keep them going until things do turn around. They have reduced production and are quickly reducing inventories. No industrial nation can grow without coal.

Patriot Coal is up more than 235% since that call. In fact, yesterday's double-digit pop came after the company's third-quarter results easily topped Wall Street estimates on rebounding demand for steelmaking coal -- consistent with devilinside's outlook.

The bullish lesson?
Learn to pounce on Mr. Market's short-sightedness. Turnaround stocks aren't always easy on the stomach, but if you truly believe in a company's long-term tailwinds, significant slowdowns offer the very best opportunities. In Warren Buffett's words, "Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can't buy what is popular and do well."

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

Here are five of Tuesday'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 All-Star BSHumphreyII urged Fools to search for something better than Baidu:

A high P/E plus some big volume declines recently strongly suggests that [Baidu's] run is over for the time being. The market looks like it's going to cool down for the fall, and that's especially bad for stocks like this one. This is probably still a decent stock for the long run, but now certainly isn't the time to get in.

Consistent with that warning, shares of the Chinese search engine plunged yesterday after the company warned of a "temporary negative impact" on fourth-quarter revenue as it switches to a new advertising system.

The bearish takeaway?
Implicit in a stock's price are very specific growth and risk assumptions. Therefore, it's your job as an investor to assess whether those assumptions are reasonable, given the company's financial and competitive outlook. As Buffett reminds us, "The investor of today does not profit from yesterday's growth."

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!