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 low-rated TiVo (NASDAQ:TIVO). Stocks go up all the time, but unless you were able to predict the pop, what does it matter?  

Our community of more than 145,000 CAPS Fools considers its high-star stocks the most likely to outperform the market.

Written in the (five) stars?
For example, 91.5% of the 485 members who've rated Stillwater have a bullish opinion of the stock. Last spring, one of those Fools, WTFAmIDoing, explained why the palladium and platinum producer was a particularly potent play:

I think the auto industry will begin recovery in the next couple years as more eco cars are released. This could potentially lead to a bid boom in turnover as people try to rebalance to a more affordable form of transportation. ... The chatter of a potential Platinum/Palladium related ETF is a bit disturbing but I this will raise short term prices while the risk of stockpiling will hopefully be offset with demand from new markets.

Including yesterday's double-digit pop, shares of Stillwater are up an amazing 145% since that call.

The bullish lesson?
When the stock of a quality business takes a beating, always try to figure out why. If Mr. Market's punishment seems to make no sense, given the company's long-term demand profile, it might be the perfect time to jump in. In Warren Buffett's words, "Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it."

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 JA Solar may have caught our community off guard, low-ranked stocks are fully expected to fall hard.

Did CAPS call the fall?
Just last week, for instance, CAPS All-Star huddaman advised Baidu bulls to search someplace else:

[Google (NASDAQ:GOOG)] might exit Chinese market leaving [Baidu] all by itself to reap the profits. 79 times earnings, of course, is not cheap. ... Why pay so much for [Baidu]? If you are really looking to buy fast growing chinese companies, why not do some research and buy fast growth Chinese companies that are selling for under 20 times earnings instead?

Following yesterday's market-bucking loss, huddaman is off to a strong start with that bearish call.

The bearish takeaway?
Never mistake an attractive business for an attractive stock. As CAPS' huddaman understands, even the fastest-growing company can disappoint Mr. Market if its valuation already reflects much of that success. 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 retire wealthy.

Log in to CAPS today and start participating. It's absolutely free -- and a lot of fun!