Thursday's Biggest Stock Stars

Hey there, Fools. I've summoned our Motley Fool CAPS community once again to highlight a few of Thursday'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 Thursday, 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 135,000 CAPS Fools considers its high-star stocks the most likely to outperform the market.

Written in the (five) stars?
For example, 92% of the 268 All-Star members who've rated Level 3 have a bullish opinion of the stock. Last month, one of those Fools, jrkchicago, explained why the Internet network operator was a great way to get some backbone:

Demand for data transmission is growing exponentially and the major telcos are offering the public an all-you-can-eat buffet for a fixed price. … [Level 3] owns the pipes the major telcos need to expand. It is just a matter of time and time is what [Level 3] has bought itself by the recent debt issuance of $280M. Should be a fun stock to watch over the next few years if you happen to be long!

Consistent with that call, shares of Level 3 surged for the second straight day after the Wall Street Journal reported that it is in early talks with Sprint Nextel (NYSE:S) about a possible joint venture.

The bullish lesson?
Always think like a business owner, rather than a stock trader. All sorts of noise can depress a stock's price in the short term, but the true investor is able to focus on the factors that really count over time. As CAPS' jrkchicago understands, by picking up valuable toll-booth-like assets at depressed prices, you give yourself plenty of "upside" opportunities -- including partnering up with one of the big boys -- to earn an outsized return.

And now for the losers ...
Of course, winning isn't everything in the stock market.

Here are five of Thursday's biggest decliners with one- or two-star ratings:   

While yesterday's drop in five-star stock UnitedHealth (NYSE:UNH) may have caught our community off guard, low-ranked stocks are fully expected to fall hard.

Did CAPS call the fall?
Last year, for instance, CAPS All-Star abitare listed several reasons lululemon looked lemon-ish:

1. Ticker: "retailer of technical athletic apparel in North America"
2. P/E = 62 for a retailer! WOW!
3. "technical athletic apparel"
4. No moat
5. US recession will hurt all retail …

FINALLY THE MAIN REASON: LULU Insider Trading
Total Buys $1,575,000 INSIDER SELLS: $771,298,148
NET TOTAL SALES $769,723,148
Is this a retailer? Or is it a company that was created to unload stock on FOOLS?

Not surprisingly, shares of the yoga gear specialist are off 56% since that call. In fact, yesterday's plunge came after lululemon posted a first-quarter earnings decline of 24% and announced second-quarter profit guidance below Wall Street's expectations.

The bearish takeaway?
Always keep an eye on the insiders. Now, it's true that insiders may sell for reasons that have nothing to do with their outlook, but when the business already sports a lofty valuation and operates in a particularly vulnerable sector, heavy insider selling can very often cement the bear case. With lululemon, for example, insider selling turned out to be a great sign of bad things to come.

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!