Thursday's Biggest Stock Stars

Hey there, Fools. I've summoned our Motley Fool CAPS community once again to highlight a few of Thursday's biggest winners among the stocks with a top rating of four or five stars.

Without further ado:

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

Our community of more than 130,000 CAPS Fools considers its "high-star" stocks the most likely to outperform the market.

Written in the (five) stars?
For example, 94% of the 2,188 members who've rated Dow Chemical have a bullish opinion of the stock. Last month, one of those Fools, samsuh, explained why the chemical giant would eventually snap out of its buyout blues:

Though they got themselves into a bit of a mess with [Rohm & Haas], it should help out their bottom line in a few years once Dow has digested this acquisition. ... [T]hough [Rohm & Haas] will put a lot of stress on their balance sheet in the short term to maybe a year, they'll be fine within a few years.

Consistent with that call, shares of Dow surged yesterday after the company finally closed on its purchase of Rohm & Haas, and quickly sold off Rohm's salt business to help pay down debt. 

The bullish lesson?
When the shares of a solid company take a plunge, always try to figure out why. If the reasons for the drop, in your own opinion, are just short-term in nature and should be worked out over time, then it might be a good opportunity to buy quality on the cheap. As Warren Buffett says, "Great investment opportunities come around when excellent companies are surrounded by unusual circumstances that cause the stock to be misappraised."

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

Here are five of Thursday's biggest decliners with a one- or two-star rating:  

While yesterday's plunge in highly rated gold stocks Yamana (NYSE:AUY) and Barrick may have caught our community off-guard, low-ranked stocks are fully expected to fall hard.

Did CAPS call the fall?
In late February, for instance, CAPS All-Star Junkyardhawg1985 warned that AutoZone's price was driving at a dangerously high speed:

Autozone should benefit from the reduction in new car sales causing more car repairs. This near term performance is already built into the stock price. At the end of the day though, Autozone is a retailer. They are a retailer with an enterprise value to revenue ratio of 1.60. Typical EV/rev ratios for retailers hover around 0.5.

In line with that call, shares of the auto-parts retailer sank yesterday on worries that slowly recovering new-car sales would eventually take a toll on business.

The bearish takeaway?
Always avoid stocks that are priced for perfection. There are certainly companies that stand to benefit from the downturn, but if everyone is piling into those "safe havens" at the same time, there won't be room left to make any money at all. As Warren Buffett advises, "The time to get interested is when no one else is. You can't buy what is popular and do well."

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, 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!