Wednesday's Biggest Stock Stars

Hey there, Fools. I've summoned our Motley Fool CAPS community once again to highlight Wednesday's biggest gainers among the stocks that have a top rating of five stars.

Without further ado:

I selected the largest five-star gainers instead of other big-name winners making noise on Wednesday -- such as Freddie Mac (NYSE:FRE) -- because stocks go up all the time, but unless you were able predict the pop, what does it matter?    

Our community of more than 75,000 CAPS Fools considers its five-star stocks the most likely to outperform the market. And so far, CAPS has indeed proved its predictive prowess: Over the past year, top-rated stocks have returned roughly 28%.

Written in the (five) stars?
For example, Banco Bradesco, Brazil's largest commercial bank, has maintained a perfect rating for the last six months straight.

This bull pitch -- by CAPS All-Star Crown01 in December of 2006 -- nicely identified some of the bullish catalysts Bradesco has recently benefited from:

For 2007 it is expected that credit levels in Brazil will see significant growth due to decreasing interest rates. [This] should add to an already strong [revenue], profitability and ROE profile. ... Bradesco has created a sustainable business model to serve a local income customer base. This positions the bank well, as its alignment with a very broad market segment sets it [apart] from competitors.

Banco Bradesco has returned an impressive 76% since that call.  

The bullish takeaway? Latin American opportunities offer a much-needed safe haven from the financial storms here at home. Although the well-documented subprime debacle has hammered domestic financials, Brazilian stocks have not only held up -- they've been on fire.

Of course, our team at Motley Fool Global Gains is on its own South American research trip at this very moment, so simply tag along, enjoy the updates, and let the Brazilian blockbusters like Bradesco come to you.   

And now for the losers ...
Of course, winning isn't everything in the stock market. Here are Wednesday's biggest one-star decliners:   

One-star stocks inspire the least confidence from our CAPS players. So while Wednesday's drop in four-star stock Marvell Technology (NASDAQ:MRVL) might have caught our community off guard, one-star stocks are fully expected to fall -- hard. Over the last year, the lowest-rated stocks dropped an average of 16.6%.

Did CAPS call the fall?
Take, for instance, this BIDZ.com bear pitch excerpt -- from Benjie007 -- just a couple of weeks ago:

Even if accusations that this company engages in deceptive bid rigging, fails to deliver items, and is selling fake product [are false], consider the business model. The annual report shows that the majority of their items are supplied by only 2 suppliers. Further, they are in an industry which is saturated and the barriers to entry are very low.

The California-based online jewelry auctioneer is already down 44% since that call. In fact, BIDZ's freefall started last Monday, when stock whistleblower Citron Research made several allegations against the company, including questionable bidding practices, suspicious insider selling, and a generally unsustainable business model. Just like Benjie007 had warned.

The bearish lesson? Always try to figure out a stock's underperform case before the majority of investors start to realize it. Not all short theories you find will have a basis, but at the least, you should consider whether or not management -- along with its business model -- deserves credit. With all the established and shareholder-friendly companies to choose from, it's probably not worth it to take the chance on dubious enterprises.

The final Foolish move
Investors often focus strictly on stock price movements (or the results), 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!