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 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 Tuesday, like low-rated biotechs Novavax (NASDAQ:NVAX) and Geron. 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 550 All-Star members who've rated China Fire have a bullish opinion of the stock. In March, one of those Fools, MattMcComb, explained why the Chinese fire protection company looked safe enough to enter:

Fast growth in a high-demand area, helps write the codes for the systems that it sells, cash-flow positive with a pristine debt-free balance sheet. FY08 revenues and income grew over 40%, and growth is expected to continue being strong in '09. What would you expect to pay for a company like this? How about a forward P/E of 7? Yeah, I'll take that.

After yesterday's pop, shares of China Fire are up more than 60% since that call.

The bullish lesson?
Learn to combine the best of both value and growth investing strategies. By seeking rapidly growing companies at cheap prices, you not only buy into stocks trading below their fair value today, but also own businesses that can increase that value tomorrow. As Warren Buffett reminds us, "Growth and value investing are joined at the hip."

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

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

While yesterday's drop in highly rated machinery stocks Deere and Caterpillar (NYSE:CAT) may have caught our community off guard, low-ranked stocks are fully expected to fall hard.

Did CAPS call the fall?
Last year, for instance, CAPS member bluedome warned our community of Raser's dull fundamentals:

This company is all website, no products. I distrust any company that is trying to do two completely different things at once (motors and geothermal energy). Most good businessmen pick one and try to compete! The green blanket can't protect them indefinitely from reality, someone has to give them money to burn.

Consistent with that skepticism, shares of the green-focused technology licensing company sank 27% yesterday after it announced a common stock and warrant offering, this time worth $25.5 million.

The bearish takeaway?
Always focus on the cash flow. Investing, after all, is about putting money up front today so you can get more of it in return tomorrow. As bluedome understands, if a business habitually bleeds cash and must depend on capital injections to survive, chances are you won't see a return of your capital, much less a return on your capital.

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!