Friday's Biggest Stock Stars

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

Without further ado:

There's a reason I selected those notable gainers, as opposed to other winners making noise on Friday, such as low-rated Dell (NASDAQ:DELL): Stocks go up all the time, but unless you were able to predict the pop, what does it matter?  

Our community of more than 135,000 CAPS Fools considers its "high-star" stocks the most likely to outperform the market.

Written in the (five) stars?
For example, 96% of the 1,145 members who've rated Melco, which owns and develops casinos in Macau, have a bullish opinion of the stock. Three weeks ago, one of those Fools, mountain81, tapped the stock as a gamble worth taking:

Forget the balance sheet for now. Debt is high but that pays for the new casino, City of Dreams, open(ed?) June 1. ... If the economy is truly on the way back (I believe so) the influx of visitors will increase along with it. ... Only two choices, either this will become the biggest sin investment in the world, or they will bankrupt. I'm betting on sin.

Consistent with that call, shares of Melco surged for the second straight day Friday, after a Wall Street analyst upgraded the stock on investor confusion regarding City of Dreams' early market share.

The bullish lesson?
Learn to pounce on Mr. Market's short-sightedness. Going against the herd isn't always easy on the stomach, but if you truly believe in a company's long-term tailwinds, some market misunderstanding can offer the very best investment values. Like 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 Friday's biggest decliners with a one- or two-star rating:  

While Friday's drop in highly rated Navios Maritime may have caught our community off guard, low-ranked stocks are fully expected to fall hard.

Did CAPS call the fall?
Five days ago, for instance, CAPS All-Star Gumfactor warned Fools about Research In Motion's recent price run:

Too high, too fast. Three months ago this stock was sitting in the 30s, now the same company, with the same sales outlook, is at 80. It's time to give some back. ... The BlackBerry Storm was not a well-received device, and Blackberry users are no longer as loyal as they once were. ... And so I'm expecting that we're going to see a gradual decrease in [BlackBerry] growth over the next 3-4 quarters.

Consistent with that call, shares of the BlackBerry maker sank Friday, despite posting quarterly revenue and profit growth of 53% and 33%, respectively, as guidance for the August quarter failed to impress Wall Street.

The bearish takeaway?
Built into every stock's price are specific cash flow and risk assumptions. Therefore, it's your job as an investor to assess whether those expectations are reasonable, given the company's financial and competitive position. As Buffett reminds us, "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, 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!