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:
| Company | Yesterday's % Gain |
|---|---|
| ONYX Pharmaceuticals (Nasdaq: ONXX) | 21.02% |
| Linear Technology | 8.27% |
| GigaMedia | 6.69% |
| Seagate Technology (Nasdaq: STX) | 5.80% |
| Dow Chemical | 3.76% |
There's a reason why I selected those notable gainers as opposed to other winners making noise on Wednesday, like low-rated Starbucks (Nasdaq: SBUX): 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, 89% of the 418 members who've rated Onyx have a bullish opinion of the stock. In late 2007, one of those Fools, skunknumerouno, was already letting Fools in on the biotech's lead star, Nexavar:
Their cancer drug seems to be very versatile and is being reviewed officially for several other types of cancer other than what it was originally intended for. Seems like a great drug to me, waiting for more FDA approvals and higher sales in the next couple of years.
Consistent with that call, shares of Onyx surged over 20% yesterday after a phase 2 trial showed that Nexavar, in addition to its current approvals for liver and kidney cancer, could eventually be used to help treat advanced breast cancer.
The bullish lesson?
There's really no substitute for knowing a company cold. By carefully breaking down the risks and rewards of a given business' pipeline, you'll be well ahead of most investors in estimating what the stock is worth. As CAPS' skunknumerouno understands, Wall Street often fails to discount the massive potential within a company's portfolio, which can add some attractive "optionality" to the valuation.
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:
| Company | Yesterday's % Loss |
|---|---|
| Advanced Micro Devices (NYSE: AMD) | 12.99% |
| Whirlpool | 9.92% |
| UAL (Nasdaq: UAUA) | 9.68% |
| La-Z-Boy | 7.91% |
| Qwest Communications | 4.16% |
While yesterday's drop in highly-rated Allegheny Tech (NYSE: ATI) may have caught our community off-guard, low-ranked stocks are fully expected to fall hard.
Did CAPS call the fall?
Last month, for instance, CAPS member mrcleaver made a rather simple bear case against AMD: "Not convinced they can compete with Intel (Nasdaq: INTC) with the current pipeline and they're losing money."
Shares of the embattled chip maker are already down 25% since that warning. In fact, yesterday's plunge came after the company posted disappointing sales and margins that were in stark contrast to Intel's strong showing last week.
The bearish takeaway?
Never underestimate the ravages of competition. Having a strong competitive edge is what ultimately drives superior returns on capital, so, more often than not, buying the best puppies, er, stocks 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.
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