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, shares in M/I Homes dropped 26% when it announced a quarterly loss of $75 million and fueled doubt about its survival.
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 members' 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 125,000 CAPS members to make better decisions.
We'll use CAPS' handy stock screening tool to quickly zero in on stocks that have been slashed by at least 20% in the past four weeks and whose companies have a market cap of greater than $100 million and a beta of less than 3. If you want to run this screen for yourself, please do -- just keep in mind that the results will update with the market.
|
Company
|
CAPS Rating
(Out of 5)
|
4-Week
Price Change
|
|
New York Times (NYSE: NYT )
|
*
|
(34%)
|
|
Allied Capital (NYSE: ALD )
|
**
|
(59.6%)
|
|
Textron (NYSE: TXT )
|
***
|
(55.5%)
|
|
International Paper (NYSE: IP )
|
***
|
(28.9%)
|
|
US Bancorp (NYSE: USB )
|
****
|
(21.4%)
|
Source: Motley Fool CAPS. Price return from Jan. 16 through Feb. 10.
New York Times
Many CAPS members are weary of the loads of debt that New York Times is carrying, and a $250 million loan provided by billionaire Carlos Slim doesn't necessarily signal that a turnaround is near. The company needs to pay off more than $1 billion in debt over the next few years, and even commanding a top brand in the newspaper industry doesn't count for much these days. Although Slim may have nabbed a great deal, only a dismal 38% of the 310 CAPS members rating New York Times expect it to beat the market.
Textron
As the corporate-jet market slows, companies such as Textron and General Dynamics (NYSE: GD ) could see a significant drop in demand for planes. Cessna Aircraft maker Textron posted a loss of $209 million for the fourth quarter, with the company's finance business putting a drag on the company. Aside from the finance arm, sales rose for the year in the major industrial divisions, but the company is thinking about selling certain divisions to raise cash if necessary. Yet a decent number of CAPS members -- 468 of the 512 rating the company -- think Textron can pull out of its dive and outperform the market going forward.
International Paper
International Paper recently reported a $452 million fourth-quarter loss, brought on by a sharp decline in demand and several one-time charges. Quarterly sales rose 12%, helped by the purchase of Weyerhaeuser's packaging business last year, but the company expects continued weakness, and growth expectations have been dialed way back in the past several months. At this point, 86% of the 365 CAPS members rating International Paper expect it to outperform the market.
US Bancorp and Allied Capital
"Bank" truly is a four-letter word to many investors these days, but there are exceptions. US Bancorp posted a 72% drop in earnings as it set aside more money to cover bad loans in the fourth quarter, but it was able to acquire the operations of two failed banks and earned almost $3 billion for the year. A lot of financial institutions went under in 2008, and many CAPS members credit US Bancorp's conservative style with its results.
Small-business lender Allied Capital has been following a more typical path these days, meanwhile, and shares dove when it warned that it may default on its debt and is reopening discussions with its lenders to change terms. Business-development companies such as Allied and American Capital (Nasdaq: ACAS ) have seen their portfolios crater recently, while their assets fall as they wrestle to raise new cash.
How does the difference between the banks stack up in CAPS? Of the 454 CAPS members rating Allied Capital, 77% see it beating the market, but 93% of the 1,870 rating US Bancorp see that bank outperforming the S&P.
Foolish final word
Whether you believe that 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 nearly 5,400 stocks that 125,000-plus members 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.
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