3 Stocks in a Tailspin

Individual stocks can surge by 10%, 25%, or even more in a short period of time. And they can fall just as far, just as quickly. For example, shares in Lexmark International fell nearly 20% after the company reported a second-quarter earnings drop of 80% along with disappointing third-quarter guidance.

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 past four weeks, and that 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

3Com (Nasdaq: COMS  )

**

(22.1%)

American Dairy (NYSE: ADY  )

***

(35.9%)

Infinera (Nasdaq: INFN  )

*****

(21.2%)

Source: Motley Fool CAPS. Price return from June 26 through July 21.

3Com
Network-equipment maker 3Com saw its shares sit on the bench last week, when tech stocks rallied to the tune of Intel's (Nasdaq: INTC  ) impressive earnings report. Although the company beat Wall Street analysts' expectations of profit in its fiscal fourth quarter, it reported weaker revenue than last year and forecasted a weak first quarter with falling gross margins.

Credit Suisse recently pointed out that overseas weakness offset by an improving North American business at peer Cisco Systems (Nasdaq: CSCO  ) , and 3Com's overseas businesses have similarly been hurt by a slowdown in China and Europe. The conclusion of its partnership with Chinese company Huawei Technologies has also hurt sales, and 3Com has been cutting costs and plans to refocus on the U.S. market in response to the shift. CAPS members aren't too thrilled about 3Com's prospects, though, as only about 79% of the 344 rating 3Com expect it to outperform the market.

American Dairy
Another company that has been left off investors' warm welcome list recently is Chinese-based American Dairy, whose shares took a beating when the company issued a weak growth outlook last week. The company still expects tremendous revenue growth -- between 71% and 86% in 2009 compared to 2008 -- but even these numbers fell short of what professional stock analysts were hoping for. The company has been hampered by new labeling regulations imposed in China, but a good number of CAPS members still like the growth possibilities for the company. At this point, 93% of the 435 members rating the company see it beating the S&P going forward.

Infinera
Communications chipmaker Infinera's shares saw a rash of selling recently, when a Jefferies analyst claimed that China's Huawei Techonologies won a contract with one of Infinera's top customers, Level 3 Communications (Nasdaq: LVLT  ) , which could translate into lost sales opportunities for Infinera. The company is also seeing tough competition with other peers such as Cisco, Ciena (Nasdaq: CIEN  ) , and Alcatel-Lucent.

The bottom line has left investors sanguine as well -- Infinera followed up a first-quarter loss with another in the second quarter and predicts the same for the third. But it's guiding for stronger-than-expected third-quarter revenue and has also seen significant sequential growth in orders and picked up four new customers. Many CAPS members feel its product portfolio and strong business model will lead to profits down the road and make it a long-term winner. A heavy majority -- 98% of the 1,053 CAPS members rating the company -- is bullish on Infinera and expects it to outperform the broader market.

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.

The Motley Fool Inside Value team looks for beaten-down stocks that are selling at bargain prices well below their intrinsic value. To see the full list of companies recommended today, take a free 30-day trial.

Fool contributor Dave Mock habitually looks for silver linings in even the darkest of clouds. He owns shares of Alcatel-Lucent and Intel. Infinera is a Rule Breakers pick. Intel is an Inside Value recommendation. The Fool owns shares of Intel and Infinera.The Fool's disclosure policy is made of sugar and spice and everything nice.


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  • Report this Comment On July 24, 2009, at 6:15 PM, Ruhaan wrote:

    I heard the full conference call and that bozo from JMP was there as well. He got the chance to ask question and he never did. So much for the confidence in you channel checks huh..

    I bet you his firm must be trying to invest now since the price has come down significantly after his downgrade.

    Some one needs to open an investigation in such rackets.

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