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 a top rating of five stars.

Without further ado:

There's a reason why I selected notable five-star gainers, as opposed to other big-name winners making noise on Tuesday, like one-star stock National City (NYSE:NCC). Stocks go up all the time, but unless you were able to predict the pop, what does it matter?  

Our community of more than 125,000 CAPS Fools considers its five-star stocks the most likely to outperform the market. And so far, CAPS has indeed proved its market-beating prowess: In the first 20 months after its inception in late 2006, five-star stocks beat the market by 12 points, annualized.

Written in the (five) stars?
For example, 95% of the 184 CAPS All-Stars who've rated Yingli Green Energy have a bullish opinion of the stock. Early this month, FoolSolo explained why the Chinese solar-cell maker is ready to come into the sun:

[Yingli] is in a sector dreadfully out of favor at this time, which is good for investors. Despite strong orders and sales projections for 2009, [Yingli] keeps getting beat up. It could go lower, but I'm willing to bet it won't go all that much lower, and the upside potential is huge for this company, especially when oil starts to climb again.

Yingli Green is up an amazing 58% since that call.

The bullish lesson?
Never let a stock chart dictate your investment decisions. As CAPS' FoolSolo understands, a company should always be assessed on its fundamentals and how cheap it is today (relative to intrinsic value), regardless of what its price has done in the past. Like Warren Buffett urges, "Make the market your servant, not your master."

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

Here are five of Tuesday's biggest one-star decliners:  

While yesterday's massive plunge in highly rated A-Power Energy (NASDAQ:APWR) may have caught our community off guard, one-star stocks are fully expected to fall hard: In the first 20 months after CAPS started, one-star stocks dropped an average of 11.4%, annualized.

Did CAPS call the fall?
In May, for instance, CAPS member BiLoandWise described Valence Technology in simple bearish terms: "Another company with lousy financials. It has nothing to sell except its own hype about its supposed "breakthroughs" while never delivering the goods."

Not surprisingly, shares of the lithium battery maker have been cut in half since that call.

The bearish takeaway?
Unless the numbers back it up, don't believe the hype. A few "great" stock stories certainly have some substance (and actual profits), but at the very least, you need to seriously consider whether management deserves any credit. With all of the established, reputable, cash-flow-generating companies to choose from, speculating on questionable enterprises with overly promotional management doesn't seem like the smartest bet to make.

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, tens of 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!

On Jan. 12, 2009, Fool co-founder David Gardner, Jeff Fischer, and their Motley Fool Pro team will accept new subscribers to their real-money portfolio service. Motley Fool Pro is investing $1 million of the Fool's own money in long and short positions in a range of securities, including common stocks, put and call options, and exchange-traded funds (ETFs). They also incorporate proprietary CAPS "community intelligence" data into their research. To learn more about Motley Fool Pro, and to receive a private invitation to join, simply enter your email address in the box below.