3 Stocks in a Tailspin

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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 of Digital River (Nasdaq: DRIV) lost more than a third of their value when one of its major customers, Symantec, said it won't extend its contract.

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 140,000 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 which 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
KB Home (NYSE: KBH)	*	(22.7%)
Seattle Genetics (Nasdaq: SGEN)	***	(30.7%)
Xerox (NYSE: XRX)	***	(20.1%)

Source: Motley Fool CAPS. Price return Sept. 18 through Oct. 13.

KB Home
In addition to the weak earnings report from homebuilder KB Home that echoed the struggling quarters of peers Hovnanian (NYSE: HOV) and Lennar, the SEC is looking into possible accounting and disclosure issues at the company. KB has been the focal point of investigations in the past, resulting in the departure of several executives, but the company doesn't believe this investigation will have any material effect on operations. Although there have been some signs of optimism in the business and KB expects to generate positive cash flow from operations this year, it doesn't expect any meaningful improvement in U.S. housing in the near future, and expects an uneven recovery. Regardless of how operations are going inside the company, many investors are weary of the housing market in general; as such, nearly 61% of the 1,200 CAPS members rating KB Home expect it to underperform the market.

Seattle Genetics
Clinical-stage biotech Seattle Genetics' shares have been on the retreat since it abruptly ended a phase-two trial for its cancer drug dacetuzumab, being developed with Roche's Genentech, as an interim analysis of that trial determined that the drug would likely fail to meet its goal. The company still has four ongoing trials with the drug and a couple of other trials -- including one of its lead product, SGN-35 -- that are expected to report data next year, giving investors hope that one of its many opportunities will pan out. Today, 92% of the 294 CAPS members rating Seattle Genetics see it beating the broader market.

Xerox
Document processing company Xerox hopes to triple its annual revenue from services and looks for annualized cost savings of $300 million to $400 million in the first three years with its recently announced plans to buy Affiliated Computer Services. While large shareholder BlackRock recently disclosed that it's cut its stake in Xerox by a third since the beginning of this year, partially mitigating the hit shares have taken recently, some CAPS members say they like the deal. The combination is similar to recent moves by others like Dell (Nasdaq: DELL) and Hewlett-Packard (NYSE: HPQ) to diversify in the technology services sector, but some investors are concerned with the integration process and resulting share dilution. As such, only a lukewarm 84% of the 401 CAPS members rating Xerox are bullish and believe there's a good chance to score big gains on Xerox.

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 140,000-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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