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:


Yesterday's Gain

American Capital (NASDAQ:ACAS)


Joy Global


Precision Drilling Trust (NYSE:PDS)


Merck (NYSE:MRK)


Sigma Designs (NASDAQ:SIGM)


There's a reason I selected those notable gainers, as opposed to other winners making noise on Wednesday, like low-rated Baidu (NASDAQ:BIDU). Stocks go up all the time, but unless you were able to predict the pop, what does it matter?

Our community of more than 145,000 CAPS Fools considers its high-star stocks the most likely to outperform the market.

Written in the (five) stars?
For example, 96.9% of the 612 All-Star members who've rated American Capital have a bullish opinion of the stock. Last summer, one of those top Fools, JMJeffrey, tapped the business development company as a bargain worth betting on:

The question is will they survive? If yes, then these prices are low enough for long term success. Because of the lack of cheery consensus the market is giving us an opportunity. I believe that from here they will survive and outperform the market in the long term.

Including yesterday's pop, shares of American Capital are already up 67% since that call.

The bullish lesson?
Learn to embrace uncertain situations. Investors often have a misconception that they can sit back, relax on the sidelines, and simply jump into a stock when all of its risks are resolved. But as Warren Buffett reminds us: "The future is never clear, and you pay a very high price in the stock market for a cheery consensus. Uncertainty is actually the friend of the buyer of long-term values."

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:


Yesterday's Loss

Houston American Energy (NASDAQ:HUSA)


Pacific Ethanol




Fuel Systems Solutions


Goodyear Tire & Rubber


While yesterday's drop in highly rated Melco Crown Entertainment may have caught our community off guard, low-ranked stocks are fully expected to fall hard.

Did CAPS call the fall?
Just three days ago, for instance, CAPS All-Star FreeMortal explained why Houston American has a problem:

They had twice as much cash last year and they are steadily burning through it with operations and equipment purchases and still no profit. There is a Texas expression that applies here: They are spending all their time saddling up instead of riding. The price is already too high by any measure and this latest run-up appears to be just hype. Gravity will soon take over.

Following yesterday's double-digit drop, FreeMortal is off to a strong start with that bearish call.

The bearish takeaway?
Always follow the cash flow. Investing, after all, is about laying out money today in order to receive more of it in return tomorrow. As CAPS' FreeMortal understands, if a business habitually burns through cash, while having dim prospects for future sales relief, chances are you won't see a return of your capital, much less a return on your capital.

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 identify tomorrow's big movers. Over time, consistently reverse-engineering winning -- and losing -- stocks will help you retire wealthy.

Log in to CAPS today, and start participating. It's absolutely free -- and a lot of fun!

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Precision Drilling and Melco are Motley Fool Global Gains picks. Sigma Designs and Baidu are recommendations of Rule Breakers. The Fool's disclosure policy is always the big winner.