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.

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 AIG (NYSE:AIG): 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, 91% of the 525 members who've rated Sequenom have a bullish opinion of the stock. In early June, one of those top Fools, beStrongBelieve, explained why the diagnostic test maker's troubles would eventually pass:

This company is still holding intellectual property that makes it a key player in prenatal research. The stock has been punished WAY too much on news of lawsuits and test data "mishandling". Small downside, HUGE upside even if this thing only makes it back up to $10.

Following yesterday's pop, shares of Sequenom are already up 44% since that call.

The bullish lesson?
Not all scandals are created equal. By figuring out which stories Mr. Market has possibly overreacted to, you'll be one step closer to bagging a legitimate bargain. As Warren Buffett tells it, "Great investment opportunities come around when excellent companies are surrounded by unusual circumstances that cause the stock to be misappraised."

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 solar stock Yingli Green Energy (NYSE:YGE) may have caught our community off-guard, low-ranked stocks are fully expected to fall hard.

Did CAPS call the fall?
Three weeks ago, for instance, CAPS member Northville urged Fools to come down off Green Mountain:

I'll admit it. I like the coffee, I even like the company. But the [trailing-12-month] P/E of something like 55x is way too overvalued. This company has to come down to earth.

After yesterday's drop, shares of the specialty coffee company are already down 19% since that warning.

The bearish takeaway?
Built into a stock's price are very specific growth and risk assumptions. Therefore, it's your job as an investor to assess whether those expectations are reasonable, given the company's business model and outlook. As Buffett reminds us, "Investors making purchases in an overheated [stock] need to recognize that it may often take an extended period for the value of even an outstanding company to catch up with the price they paid."

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!