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, Acadia Pharmaceuticals (Nasdaq: ACAD  ) saw its share price almost halved with a 43% drop on Monday, after its ACP-104 schizophrenia-treating drug failed a recent study. That left the company with few options to compete with Johnson & Johnson's (NYSE: JNJ  ) own schizophrenia drug, Risperdal.

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 110,000 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 past four weeks and that have a market cap 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 CAPS screen returned:

Company

CAPS Rating
(Out of 5)

4-Week
Price Change

Pacific Ethanol (Nasdaq: PEIX  )

*

(55.9%)

Fifth Third Bancorp (Nasdaq: FITB  )

*

(36.3%)

CompuCredit (Nasdaq: CCRT  )

**

(31.2%)

Sigma Designs (Nasdaq: SIGM  )

*****

(29.5%)

Navios Maritime Holdings

*****

(26.4%)

Return data is calculated as the difference between the closing price on May 20 and the closing price on June 17, 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.

Corn popped
With seasonal storms dumping unmanageable amounts of water across the Midwest, corn prices are exploding as crop field yields fall significantly. Ethanol producers are feeling the aftershocks, and analysts have subsequently downgraded many ethanol producers, including Archer Daniels Midland (NYSE: ADM  ) and VeraSun Energy. Small-scale producers such as Pacific Ethanol are particularly vulnerable to the escalating price of corn -- many investors are fleeing.               

Even though the price of ethanol has risen 50% in the past year, corn has outpaced that inflation with a 78% rise. To deal with the pricing squeeze, Pacific Ethanol recently raised $28.5 million of fresh financing from a convertible share offering. The move will strengthen the balance sheet for the time being, but it hasn't totally alleviated investors' concern that this tiny alternative-energy company is on its deathbed. In CAPS, only 56% of the 797 investors rating the company have made bullish calls. That leaves 347 thinking Pacific Ethanol won't keep pace with the broader market.

Credit spin
The payday-lending sector has spent plenty of time in the regulatory doghouse over the years, since many politicians view the practice of high-interest loans to subprime classes as predatory. Specialty finance provider CompuCredit took another one for the team when the FTC hit the company with charges of unfair and deceptive marketing of credit cards. The FTC and the FDIC, saying the company was deceptive in disclosing fees and charges, both slammed CompuCredit and two partner banks for allegedly violating the Truth in Lending Act.                                        

The subprime bloodletting has already taken entire sectors down with it, and CompuCredit had already fallen 75% in the past year before news of the government lawsuit. At one point, some lending companies, such as CompuCredit and First Marblehead, were thought to be at least partially protected from the subprime fallout, because of their proprietary databases that gave the companies low customer-default levels. But these moats have been shown to be much shallower than expected, and the rising defaults seem to have broken even the heartiest of financial levees.

At least some contrarian investors see the extreme pessimism surrounding the whole high-risk-lending sector as an opportunity to not cut their losses but rather put their money to work. Certainly, servicing lower-tier credit customers remains a highly profitable business beyond the current regulatory and market turmoil. Among CAPS investors, 84% of the 692 investors rating CompuCredit think the company will outperform the market.

Ultimately, whether you believe a fall in any stock is warranted, your own research is more important than collective opinions. 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 5,500 rated stocks that 110,000-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.

CompuCredit is one of dozens of companies that the Motley Fool Stock Advisor service has picked to beat the market. To see all of the stocks that have helped Tom and David Gardner beat the market by 43 points on average, take a free 30-day trial.

Sigma Designs is both a Motley Fool Hidden Gems Pay Dirt and Rule Breakers pick. Johnson & Johnson is an Income Investor selection. First Marblehead is an Inside Value choice.

Fool contributor Dave Mock habitually looks for silver linings in even the darkest of clouds. He owns shares of Johnson & Johnson and is the author of The Qualcomm Equation. The Fool's disclosure policy is made of sugar and spice and everything nice.


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