Wednesday's Biggest Stock Stars

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

Our community of more than 140,000 CAPS Fools considers its high-star stocks the most likely to outperform the market.

Written in the (five) stars?
For example, 94% of the 1,383 members who've rated LDK Solar have a bullish opinion of the stock. Just last month, one of those Fools, drago007, saw brighter days ahead for the solar wafer maker: "Once solar inventory stabilizes and the global economy starts seeing real signs of recovery, LDK is well positioned to do well not only in the Chinese solar market but Europe as well."

Consistent with that call, shares of LDK surged 20% yesterday after it announced plans to help ease some of its liquidity concerns by selling a 15% stake in its Chinese polysilicon plant for $219 million.

The bullish lesson?
Learn to be long-term greedy when others are short-term fearful. Going against the herd is never easy, but if you truly believe in a company's long-run potential, serious worries from Wall Street can lead to attractive buying opportunities. As Warren Buffett reminds us, "Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices."

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:  

While yesterday's drop in highly rated Exelixis 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 vanamonde showed skepticism over Nanometrics' recent price run: "To my taste, it was not particularly responsible by [Nanometrics] to drop a (very much so standard) press release about new orders in the middle of an ongoing pump, but OK. 60% jump in four days with high volume means that after the speculative money drains out, some longer term investors will surely get to regret their high entry point."

Consistent with that warning, shares of Nanometrics plunged yesterday after the chip-manufacturing equipment maker and founder Vincent Coates filed a registration to sell a combined 6.2 million shares, a move that could prove highly dilutive.

The bearish takeaway?
Never confuse an improving price for improving prospects. As long as a company's long-term profitability remains highly speculative, short-term, speculation-driven run-ups can last for only so long. As Buffett observes, "For some reason, people take their cues from price action rather than from values. ... The dumbest reason in the world to buy a stock is because it's going up."

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 become a more Foolish investor.

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

© 2009 UCLICK L.L.C.