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 top ratings 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 one-star stock Palm (NASDAQ:PALM). 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, 98.2% of the 228 All-Star members who've rated AgFeed have a bullish opinion of the stock. Two weeks ago, one of those Fools, stan8331, shared these bullish thoughts on the Chinese animal feed maker:

There are a lot of folks in China who need to eat, and they have a lot more income to spend on food than ever before. Making feed for livestock the Chinese love to eat seems like a good business to be in. There is significant debt, but revenue growth is good and a Chinese recovery in the second half of 2009 appears likely.

After yesterday's pop, shares of AgFeed are already up more than 50% since that call.

The bullish lesson?
Learn to combine the best of both small-cap and global investing strategies. By buying into potent small-caps domiciled in attractive foreign markets, you earn the double benefit of owning a business that has plenty of room to rocket, while getting paid in non-U.S.-denominated cash flows. As long as you're cognizant of price, international small caps offer a great way to play both offense and defense.

And now for the losers ...
Of course, winning isn't everything in the stock market. Here are five of Tuesday's biggest decliners with one- or two-star ratings:   

While yesterday's drop in five-star stock Giant Interactive may have caught our community off-guard, low-ranked stocks are fully expected to fall hard.

Did CAPS call the fall?
Two months ago, for instance, my Foolish colleague Rich Smith (TMFDitty) explained why First Solar's future didn't seem so bright:

Poly-Si prices are going down the drain, eroding First Solar's cost advantage in thin film. Oil prices are down too, and I have real reservations about how much of a boost Mr. Obama's stimulus plan will give to U.S. sales. Meanwhile, the Italian and German solar markets look weak, and the Spanish market has all but vanished.

Consistent with that call, shares of the solar-panel maker sank yesterday, after a Wall Street analyst downgraded the stock on slipping polysilicon prices and weak European demand -- exactly as Rich had warned.

The bearish takeaway?
There's really no substitute for knowing a business model cold. As the Fool's TMFDitty demonstrates, the only way to reasonably predict a company's fortunes is to understand how its sales and input costs interact with various industry and economic variables. Like Warren Buffett once wrote, "Equity Investment Strategy = Evaluate the Business in Its Entirety."

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!