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

Without further ado:


Yesterday's % Gain

Allis-Chalmers Energy  (NYSE: ALY)


Balchem (Nasdaq: BCPC)


Matrix Service (Nasdaq: MTRX)


China Fire & Security Group


Apco Argentina


There's a simple reason I selected the largest five-star gainers, as opposed to other big-name winners making noise on Wednesday, like low-rated solar stocks First Solar (Nasdaq: FSLR) and JA Solar Holdings. Stocks go up all the time, but unless you can predict the pop, what does it matter?

Our community of more than 83,000 CAPS Fools considers its five-star stocks the most likely to outperform the market. And so far, CAPS has indeed proven its market-beating prowess: Over the last year, top-rated stocks have returned roughly 28%.

Written in the (five) stars?
For example, of the 64 CAPS players who've rated Balchem so far, only one has a bearish opinion. On the strength of that Foolish support, the New York-based chemical company recently received its first five-star rating just two months ago.

This outperform pitch, by CAPS player metropick last June, nicely broke Balchem down by segment:  

Considering choline chloride goes mainly into chicken feed, and chicken consumption is going to surpass pork by 2015, Balchem's BCP Ingredients business segment is worth the current share price ($17.76) all by itself. Add to that the other two business segments [Encapsulated/Nutritional Products and ARC Specialty Products], which make up roughly 60% of the rest of the company, and you are left with a true gem!

Great entry at any price below $24 in my opinion.

Balchem is up 27% since that call.  

The bullish takeaway?
Sometimes, the whole is less than the sum of its parts. Determining what a company's divisions would be worth if it was broken up is one of the more straightforward (and justifiable) ways to analyze a company. By breaking down a company part by part, you'll have a much better idea of the value you're receiving.     

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

Here are Wednesday's biggest one-star decliners:   


Yesterday's % Loss



MGIC Investment (MTG)


Radian Group (NYSE: RDN)


Cumulus Media (CMLS)


NxStage Medical (NXTM)


One-star stocks inspire the least confidence from our CAPS players. So while yesterday's drop in Blue Nile (Nasdaq: NILE) may have caught some Fools off-guard, one-star stocks are fully expected to fall hard. Over the last year, CAPS' lowest-rated stocks dropped an average of 16.6%.

Did CAPS call the fall?
Back in early January, for instance, mewprico highlighted the toxic risks facing Radian Group shareholders:

This insurer of homes is going to be faced with a growing number of delinquencies and foreclosures. The extent of which they and no one else knows. They insured when conventional wisdom said it was good business, turns out it wasn't.

Shares of the Pennsylvania-based mortgage insurer are already down 37% since that call. In fact, yesterday's drop came after Standard & Poor's cut the company's rating to AA-minus from AA on a forecast of higher losses stemming from its residential mortgage securities -- just as mewprico had warned.

The bearish lesson?
With investing, it's far more important to look down rather than up. One of the biggest mistakes we can make as investors is underestimating the risks that cause permanent loss of capital. If you're unable to gauge the magnitude of a company's liability exposures, it would be small-f foolish to even think about an investment.

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!

Blue Nile is a recommendation of the Motley Fool Rule Breakers and Motley Fool Hidden Gems newsletters. Either is available free for 30 days with a trial subscription.

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. The Fool's disclosure policy is always the big winner.