Wednesday's Biggest Stock Stars

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

There's a reason why I selected those notable gainers, as opposed to other winners making noise on Wednesday, like low-rated AMD (NYSE:AMD). 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, 96.4% of the 554 members who've rated A-Power have a bullish opinion of the stock. Last week, one of those Fools, AllStarPortfolio (crediting gman444), described the Chinese power equipment company in purely bullish terms:

[A] small, non-government owned/operated company that most importantly, seems to be on good terms with the Chinese government ... Management seems to have a nose for strategic alliances, and has developed a partnership with [General Electric (NYSE:GE)] ... and partnerships with two major Chinese universities, which will help them stay on the cutting edge.

Consistent with that call, shares of A-Power surged yesterday, after the company announced a $52.8 million contract with Huaian Huapeng Biomass Electricity Co. to construct and install renewable energy systems in the City of Huaian.

The bullish lesson?
Pay attention to small stocks that make a habit of landing big deals. Just a couple of major contract wins can have a huge impact on a small business, so focus on the market-leaders with big-industry trends working in their favor. If those tailwinds are strong enough, blockbuster deals will probably keep blowing in that company's direction.

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

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

Did CAPS call the fall?
Late last month, for instance, CAPS member A6EIntruder seemed puzzled over Zale's recent price performance: "I can't imagine jewelry in this economy -- particularly at these price points. However, the stock's been performing for the past couple of days ... maybe diamonds really are a girl's best friend?"

Consistent with that skepticism, shares of the jeweler plunged 20% yesterday, after its quarterly loss widened to $23.2 million as the recession continued to hurt demand.

The bearish takeaway?
Never confuse an improving stock price for improving fundamentals. As long as a company's fundamental picture continues to deteriorate, short-term, momentum-driven run-ups can only last so long. As Benjamin Graham famously said, "In the short run, the market is a voting machine, but in the long run it is a weighing machine."

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!