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 Patriot Coal were slaughtered for a nearly 17% loss one day recently after it decided to close one of its mines due to geologic conditions.

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 165,000 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 June 11 through July 6.

Affymax
Affymax has been hoping that a once-a-month dosage of its anemia drug candidate Hematide would have an edge over Amgen's (Nasdaq: AMGN) Epogen and Aranesp that require more frequent doses. But after late-stage clinical study results showed a higher rate of death and stroke in patients, shares tanked as analysts and investors grew skeptical that the drug will be able to gain approval, particularly with the increased scrutiny anemia drugs have received in recent years. Although CAPS members have bumped up Affymax's rating a notch following the drop in share price, the stock still sits at a bearish two-star rating with only 77% of 145 CAPS members rating the company expecting it to outperform the broader market.   

USG
Unsurprisingly, it's been tough for wallboard maker USG's shares to gain any ground with the continued weakness in the housing market. Following the end of the ill-conceived first-time homebuyers' tax credit in April, new home sales fell to a record low in May, prompting homebuilders like Lennar (NYSE: LEN) to cut prices. And USG's major customer Home Depot and its home improvement peer Lowe's (NYSE: LOW) each recently had their earnings estimates cut by analysts at FBR Capital markets and Credit Suisse. Not to be left out, Moody's slapped a credit downgrade on USG due to the hazy outlook in the building sector as well. CAPS members had grown weary of USG back in April following a big run in shares, and the switch in sentiment led to a downgrade in the stock to three stars. With eerie coincidence, the stock plunged, but today you'll still find about 93% of the 1,920 CAPS members rating USG believing it will beat the S&P.

Dynegy
While Dynegy swung to a first-quarter profit and sees the potential for more favorable power pricing in the future, its first quarter results still showed lower demand for power with revenue falling 5%. Shares have continued their downward fall as investors have been concerned about weak power prices and the continued weakness in prices for natural gas. While it can be a double-edged sword, some analysts see peer AES' (NYSE: AES) exposure to emerging markets as a benefit, but the focus on the domestic market is seen by some as a drag on Dynegy. Compounding concerns, ratings agency Moody's has a negative outlook on the company's heavy load of debt, which has some investors downright scared. But as the fall in shares has yielded a cheaper valuation, more bargain-hunting investors are circling the company as a strong majority of CAPS members have maintained the stock's four-star rating. When comparing bulls to bears in CAPS, 95% of the 628 members rating Dynegy today still see it as 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 165,000-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.