5 Stocks in a Tailspin

Individual stocks can surge 10%, 25%, or even higher in a short period of time. And they can fall just as far, just as quickly. 

For example, investors in ExpressJet Holdings (NYSE:XJT) experienced turbulence and saw their stock drop 41% in a single day last month. The airline had announced plans to cut its capacity by 30% due to soaring fuel prices and dismal load factors well below larger carriers such as former legacy patron Continental (NYSE:CAL).

Big drops in share price can sometimes signal material defects or new risks. But at other times, they're simply pullbacks after a long run-up. Fortunately, we have Motley Fool CAPS, a great resource to help us understand the larger picture behind big price drops.

Is the sky falling?
CAPS contains more than just the crowd's opinions. Its best-performing investors' votes count more in shaping each company's rating than do the picks of their poorer-performing peers. That way, investors can intelligently use the collective wisdom of more than 105,000 CAPS investors to make better decisions.

We'll use CAPS' handy stock screening tool to quickly zero in on companies that have been slashed by at least 20% in the last four weeks, and which have a market cap greater than $100 million and a beta of less than 3. That will keep us out of the mud-filled world of gyrating penny stocks.

Here's a sample of stocks our CAPS screen returned:

Return data is calculated as the difference between the closing price on May 13 and the closing price on June 10, per Yahoo! Finance. Star rankings from CAPS.

Let's delve deeper into recent circumstances and find out why some of these stocks have been beaten so badly.

Homebound
With the bloodletting in the real estate sector, homebuilders and mortgage lenders are repeatedly showing up in our Tailspin series with dramatic share declines. But investors have been suckered back into homebuilders a few times, as Federal Reserve rate cuts and questionable government initiatives to support the housing sector propped up shares of many in the industry -- temporarily.                                           

The housing turnaround still has a long way to go. Standard & Poor's rating agency again cut homebuilder ratings in May, and on Monday, Moody's joined the gang tackle and lowered ratings for many homebuilders, including Centex and Ryland. The usual suspects are behind the recent warnings: cash flow problems, falling home prices, and difficulty meeting credit arrangements. Of course, Fitch didn't want to be left out and also slashed ratings on multiple builders, seeing the housing market continuing its decline well into 2009.

Centex has already been furiously writing off billions in value of land and homes, and chief executive Timothy Eller received about half the compensation he did the previous year. But that hasn't made investors feel a whole lot better about the homebuilder's prospects, as a strong majority of CAPS investors rating the company -- 653 out of 963 to be exact -- still expect Centex to underperform the market going forward. Ryland isn't far behind, with 389 of 599 rating that company bearishly.

Not so sure about insurance
Like radiation from nuclear weapons, the fallout from the housing malaise continues to creep across financial sectors. Bond insurer Ambac Financial has been sitting close to ground zero for too long, with mounting financial troubles getting worse by the quarter. The company was obliterated on announcing a loss of $1.66 billion in its most recent quarter, with a good portion of its losses linked to residential mortgage-backed securities.

To add insult to injury, Standard & Poor's is booting Ambac from the S&P 500 after the company was sitting in last place at No. 500 with a market cap that had fallen to $860 million. Raising billions and diluting shares in the process hasn't helped prop up a stock that has fallen more than 90% already this year either, and CAPS investors still believe the future is bleak for Ambac. More than 52% of the 1,037 investors rating the company think Ambac will underperform the S&P going forward.

Ultimately, whether or not you believe a fall in any stock is warranted, your own research is more important than collective opinions. But CAPS can help you quickly focus your due diligence, and even point out potential pitfalls you may not have seen.

Add your take on these or any of the 5,700 stocks that 105,000-plus investors have covered in Motley Fool CAPS. It's totally free to be a part of the community, and the payback is more than worth it.