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 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 Wednesday, like low-rated financials AIG (NYSE:AIG) and Citigroup: 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, 99% of the 618 All-Star members who've rated Foster Wheeler have a bullish opinion of the stock. Just last month, one of those top Fools, tenmiles, helped foster the positive sentiment:

Going to start a gradual re-investment into the engineering and infrastructure segment over the next quarter. Foster seems like a good one to start with, given its international diversification and strong financials. Significant exposure to oil and gas projects; believe this one is cheap sub $21 for patient types.

Consistent with that call, shares of Foster Wheeler surged yesterday after the company posted a sharp 24% drop in second-quarter earnings and still managed to blow out expectations.

The bullish lesson?
Always be on the hunt for stocks priced for imperfection. It's virtually impossible to call a stock's "bottom," but if you're confident that the risks are already baked into the price, there's a good chance your investment will turn out well over time. Like Warren Buffett tells it, "Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can't buy what is popular and do well."

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

While yesterday's plunge in five-star stock American Oriental Bioengineering may have caught our community off-guard, low-ranked stocks are fully expected to fall hard.

Did CAPS call the fall?
In late May, for instance, CAPS member ETMatyahoo warned Fools about gambling on Ameristar: "[Native Indian] competition, changing social values (like the no-smoking rules) are unpredictable. Global and national competition still draw more people, not just high rollers, to Vegas & places like Macau."

Consistent with that warning, shares of the regional casino operator sank yesterday after its quarterly profit fell 16% percent as gambling sales continued to slump, while a debt restructuring increased borrowing costs.

The bearish takeaway?
Never underestimate the ravages of competition. Having a strong competitive edge is what ultimately drives outsized returns on capital, so, more often than not, buying the best puppies, er, businesses is what pays off over time. As Buffett reminds us, "The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage."

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!