Tuesday's Biggest Stock Stars

Hey there, Fools. I've summoned our Motley Fool CAPS community once again to highlight a few of Tuesday'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 Tuesday, like low-rated speculation stock CIT Group (NYSE:CIT). 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, 96% of the 455 All-Star members who've rated Excel Maritime have a bullish opinion of the stock. Two months ago, one of those top Fools, ypcheng, explained why the stock was all set to sail:

The recovery of drybulk shipping is directly related to the worldwide economic activities. I am confident that Chinese will lead the recovery with greater commerce activities. By the way, the daily shipping rate is on an up trend and [Excel] is a solid company.

Consistent with that call, shares of Excel surged more than 20% yesterday, as the Baltic Dry Index spiked after several days of declines -- perhaps on signs that Asian growth is reviving.

The bullish lesson?
When the stock of a solid business takes a beating, always try to figure out why. If Mr. Market's punishment seems to make no sense, given the market's long-term demand profile, it might be the perfect time to jump in. As Warren Buffett recently wrote, "When investing, pessimism is your friend, euphoria the enemy."

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

While yesterday's drop in highly rated Take-Two Interactive (NASDAQ:TTWO) may have caught our community off-guard, low-ranked stocks are fully expected to fall hard.

Did CAPS call the fall?
In January, for instance, CAPS member TMoney101 was rather direct about Dell's downside:

Computers are too cheap and have become a commodity. I don't believe in the "netbook" craze and until the next big thing comes out of this industry to make people spend money, I see nothing but declining margins. Oh, and I almost forgot to mention that the economy is awful.

In line with that warning, shares of the PC giant sank yesterday after forecasting lower gross margins for the second quarter on higher component costs and weak demand.

The bearish takeaway?
Diminishing moats eventually lead to diminishing returns. Betting on beaten-down blue chips can be a very smart move, but unless you're certain that any competitive advantages remain in tact, you always run the risk of getting "value trapped". 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!