3 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, shares of Palm fell 29% last Friday after the smartphone maker announced plummeting sales and a weak outlook that prompted several Wall Street analysts to leave the company for dead.

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 160,000 CAPS members to make better decisions.

We'll use CAPS' handy stock screening tool to quickly zero in on companies with three factors: their prices have fallen at least 15% in the last four weeks, and they have a market cap greater than $100 million and a beta of less than 3.

Source: Motley Fool CAPS. Price return Feb. 26 through March 23.

VirnetX
Software technology firm VirnetX recently won a legal victory against Microsoft over its virtual private networking patents and a $106 million award to go with it. Then only days after securing the win, VirnetX returned for more with allegations of patent infringements by Microsoft's Windows 7 and Windows Server 2008 R2 software. But investors' euphoria has worn thin as the stock has recently pulled back from a big run. Even with a wild run through penny stock land, it has earned little support in CAPS with an income statement that has been covered mostly in red ink since the young company's inception. At this point, most CAPS members are avoiding the gamble with just a meager 32% of the 94 CAPS members rating VirnetX expecting it to outperform the broader market.

Fuqi International
The recent accounting goofs at Fuqi International illustrate one of the big risks of investing in foreign companies, as investors in Mahindra Satyam (NYSE: SAY) can attest to. Fuqi's share price recently tanked after announcing accounting errors that inflated profits, and the company also deeply cut its fourth-quarter guidance. Fuqi provided estimates of how much last year's profits may have been overstated -- somewhere between $0.15 and $0.19 per share -- and some CAPS members are taking a stab at their own guesstimates of valuing the company. Even with the limited information, though, the stock still sits at a four-star rating, and some CAPS members are taking a contrarian stance and hope to benefit from the market fear. Over 96% of the 531 CAPS members rating Fuqi International remain bullish.

Terra Nitrogen
While other fertilizer stocks like PotashCorp and Agrium (NYSE: AGU) have been on the rise lately, shares of Terra Nitrogen have been on a downhill course since its recent earnings release. In addition to plummeting fourth-quarter revenues and earnings, the recent activity surrounding CF Industries' (NYSE: CF) successful takeover of Terra Industries (NYSE: TRA), which holds a substantial stake in Terra Nitrogen, has sparked concern over triggering a default on Terra Nitrogen's credit facility. But with no borrowings on the facility and a debt-free balance sheet, Terra Nitrogen says it will work with lenders to avoid that outcome. And many CAPS members remain bullish on the outlook for improving demand and higher selling prices this year, with about 96% of the 1,175 CAPS members rating Terra Nitrogen believing it will be a market-beating investment. 

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 5,400 stocks that 160,000-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.