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 fast. All it took for UnitedHealth Group  (NYSE: UNH) to fall 24% in the past three weeks was pessimistic 2008 guidance from peer WellPoint (NYSE: WLP) and a failure to rebut health-care industry ills with its own outlook.

Big drops in share price can signal material defects or new risk in a company, 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' opinions count more in shaping each company's rating than the picks of their poorer-performing peers. This allows investors to intelligently use the collective wisdom of more than 94,000 CAPS investors to make better investing decisions.

To put this into practice, we'll screen for stocks that have been slashed by at least 25% in the past month, and that have a market cap of greater than $100 million and a beta of less than 3. That'll keep us out of the mud-filled world of gyrating penny stocks.

Here's a sample of stocks our screen returned.

Let's add a little color to recent circumstances and find out why some of these stocks have been beaten so badly.

Down with the CIT
As the economy slowly unwinds its years of excess in housing and cheap debt, many financial firms have already taken huge losses as they write off billions in asset value. Some, such as commercial lender CIT Group, still carry potentially bad loans on their books. For CIT, that's even though it shut down its mortgage lending unit last year.

In the past few weeks, CIT has given investors even less reason to have confidence in the company's future by taking a "liquidity action" that included tapping $7.3 billion in unsecured credit facilities. The company needs the money to repay debt that is maturing in 2008 and to continue funding operations. But CIT needs even more funds, and the company noted that it continues to seek additional funding sources as well as to explore the sale of some assets.

Even before its most recent woes, CAPS investors have generally described CIT as a subpar investment by giving it only two stars out of five. With many seeing things getting worse before they get better, 30% of CAPS investors rating the company believe it will underperform the S&P going forward.

In memory of Micron
Investors looking for refuge from the financial sector aren't getting any solace in the memory market. Micron and other makers of memory semiconductors are still reeling from a glut. Even while the company reins in expenses, the top line was barely strong enough to return a gross profit in the most recent quarter, leaving the bottom line deep in red ink.

Besides pricing pressures from a highly competitive market, Micron spends millions fighting litigation on several fronts with Rambus, a licensing company seeking hundreds of millions in royalties on past and future sales of certain types of memory. In the latest chapter of a long-running legal saga, a federal court ruled against Micron's complaint that Rambus had engaged in a "patent ambush" that secretly put some of the company's key intellectual property in memory standards.

Rumors also continue to swirl about consolidation among some of the major memory players, with Micron thought to be a target. But CAPS investors are still a little wishy-washy about Micron, with 399 of the 477 investors who chimed in believing the company can outpace the market, leaving the rest concerned that it isn't yet time for a turnaround.

Ultimately, whether you believe the reasoning behind a fall in any stock, your own research is more important than collective opinions. Still, CAPS can 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 5,500 stocks that 94,000-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.