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 AIG fell 27.6% one day last week when a Wall Street analyst expressed a dismal outlook for AIG's equity value.
Big drops in share price can sometimes signal material defects or new risks. But at other times, they're simply pullbacks along with the larger pessimism facing the market today. 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 135,000 CAPS members 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 that have a market cap 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
|
|
Emulex (NYSE: ELX )
|
**
|
(21.1%)
|
|
IntercontinentalExchange (NYSE: ICE )
|
***
|
(26%)
|
|
Stillwater Mining (NYSE: SWC )
|
****
|
(20.8%)
|
Source: Motley Fool CAPS. Price return June 19 through July 14.
Emulex
While EMC (NYSE: EMC ) eventually won its bidding war for storage provider Data Domain, communications and media chip maker Broadcom (Nasdaq: BRCM ) finally threw in the towel in its battle to acquire storage technology company Emulex and rescinded its recently sweetened offer. Hoping for a deal to be struck, shareholders had driven up shares of Emulex; the two companies had been maneuvering publicly since Broadcom went public with an offer in April. In the end, Emulex contended that Broadcom's $912 million bid still undervalued the company. Emulex raised its estimates for its fiscal fourth quarter and recently won some new design contracts, a central part of the company's logic in stating that Broadcom's bid was too low. The company still has a lukewarm reception in CAPS, with 84% of the 114 members rating Emulex expecting it to be a market-beating stock.
IntercontinentalExchange
Shares of companies such as IntercontinentalExchange and CME Group (Nasdaq: CME ) have been pushed down by investors who are nervous about potential U.S. regulations that could impose limits on the ability of speculators to trade in oil and other commodities. Over the past year, commodities prices have seen a big rise and fall, driving lots of trading volume to the exchanges, which earn a commission for each trade.
IntercontinentalExchange generates a higher percentage of its revenue through energy derivatives than does CME Group, and while the company supports improving the transparency of exchanges, it is concerned that too many restrictions could drive traders away from regulated exchanges. Today, 94% of the 846 CAPS members rating IntercontinentalExchange believe it will outperform the broader market.
Stillwater Mining
Like North American Palladium, Stillwater Mining produces precious metals and recycles spent catalyst materials, such as those used in automobile catalytic converters, which hasn't exactly been a growing market lately. The company has supply agreements with General Motors and Ford (NYSE: F ) that guarantee a minimum price on platinum group metals if market prices decline. But with the "old GM" now completely worthless, Stillwater may lose the GM contract, depending on the judgment of a bankruptcy court.
Despite the grim warnings, Stillwater forecasted second-quarter results that should surpass market expectations and says it can absorb the impact if GM is successful in cancelling the contract. Overall, 92% of the 436 CAPS members rating Stillwater Mining see the potential for a recovery in the long term and are bullish on the stock.
Ultimately, whether or not 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 5,300 stocks that 135,000-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.
RSS Headlines
Fool UK