Monday's Biggest Stock Stars

Hey there, Fools. I've summoned our Motley Fool CAPS community once again to highlight a few of Monday'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 Monday, like low-rated Dendreon (NASDAQ:DNDN). Stocks go up all the time, but unless you were able to predict the pop, what does it matter?  

Our community of more than 115,000 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: Since its inception in 2006, five-star stocks are beating the market by 12 points, annualized.

Written in the (five) stars?
For example, 98% of the 106 CAPS All-Stars who've rated Motley Fool Hidden Gems pick International Bancshares have a positive opinion of the stock.

In November 2007, CAPS member balloonforu summed up the bull case with a few simple lines:

After many years of stellar performance, has taken a hit for past three years. Good fundamentals and supposedly no sub-prime exposure. ... Prime for take-over by national or international bank. Good management.

International Bancshares is beating the market by more than 50 percentage points since that call.

The bullish lesson?
Learn to pounce when Mr. Market throws attractive babies out with the bathwater. When times get scary, investors tend to sell stocks haphazardly, based simply on the sector they belong to, rather than analyzing situations on a case-by-case basis. Our CAPS community has long believed that International Bancshares would not only survive, but thrive, in all of the credit mess, so the stock's weakness over the last few years provided Fools with a smart opportunity.

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

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

While yesterday's plunge in highly rated Russian stocks Vimpel Communications (NYSE:VIP) and Mechel may have caught our community off guard, one-star stocks are fully expected to fall hard: Since CAPS started, one-star stocks have dropped an average of 11.4%, annualized.

Did CAPS call the fall?
Last week, for instance, CAPS All-Star nocemployee shared some bearish thoughts on National City:

With the banking troubles of today, only the big dogs will stay in the game. Even if the market in and around Cleveland is doing well, they [National City] must still compete with the national/worldwide big dogs. I believe the 55% [stock price] increase will disappear.

Of course, in line with that call, shares of National City plunged more than 25% yesterday on general market mayhem, and after Fitch downgraded the bank but noted that it had strong liquidity.

The bearish takeaway?
If you're itching to dive into a distressed sector, count on only the fittest to survive. If and when the industry picks up, weaker players will likely remain shaken, while the best of breed should come out stronger than before. As CAPS' nocemployee understands, turnarounds are tricky enough as it is, so keep things simple by betting only on the best.

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.

On Oct. 7, 2008, Fool co-founder David Gardner and his Motley Fool Proteam will invest $1 million in a portfolio designed to help you make money in any market. In the coming weeks, the team, relying heavily on proprietary CAPS "community intelligence" data, will establish long and short positions in a broad range of securities, including common stocks, publicly traded put and call options, and exchange-traded funds. To learn more about Motley Fool Pro and to receive a private invitation to join, simply enter your email address in the box below.