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 home decor retailer Kirkland dropped 25% last Friday after it gave investors the triple-whammy by missing Wall Street's second-quarter expectations, lowering its full-year revenue guidance and warning of margin pressure in the second half.   

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 20% in the last four weeks, and they have a market cap greater than $100 million and a beta of less than three.

Company

CAPS Rating
(out of 5)

4-Week
Price Change

A123 Systems (Nasdaq: AONE  )

***

(39.3%)

iStar Financial (NYSE: SFI  )

***

(27.2%)

First Marblehead (NYSE: FMD  )

****

(24.2%)

Source: Motley Fool CAPS. Price return July 30 through Aug. 24.

A123 Systems
A123 Systems' shares have continued to trend lower this year after the lithium-ion battery maker posted a wider second-quarter loss despite reporting a 15% revenue increase. The poor performance missed analysts' expectations on the top and bottom lines, so it's no surprise to see the market send shares lower. Yet even though the stock now sits far below last year's IPO price, that hasn't deterred CAPS members from coming to the bullish side and recently bumping up its CAPS rating to three stars. With some members focused on the company's long-term potential, roughly 88% of the 346 CAPS members rating A123 Systems expect it to beat the broader market.                              

iStar Financial
Like many firms in its industry, commercial real estate lender iStar Financial is still sitting on a boatload of bad loans, and it's concerned that asset prices aren't recovering fast enough. The weakness in property values is prompting some major property owners such as Vornado Realty Trust (NYSE: VNO  ) and Simon Property Group (NYSE: SPG  ) to stop making mortgage payments on underwater properties -- even while they still have cash available -- to try to pressure their lenders into restructuring debt. iStar is attempting to head off more pain by renegotiating looming debt maturities coming due in the next couple of years. But while Simon and Vornado are seeing their quarterly results come around and stocks recover, iStar Financial recently posted a worse-than-expected second-quarter loss. CAPS members are still giving it a chance at recovery with a middle-of-the-road three-star rating; 89% of the 398 members rating iStar Financial still hold a bullish call on the stock.    

First Marblehead
Student loan administration and servicing company First Marblehead recently posted another quarterly loss and falling revenue, hurt by fewer loans held for sale. It also turned in lower service revenue, but some CAPS members think the company may be able to turn a corner and benefit from a recovering private student loan market. More financial institutions, including competitor Wells Fargo (NYSE: WFC  ) , are launching new programs, and First Marblehead is making moves of its own to capture potential future demand. It's started new initiatives with SunTrust (NYSE: STI  ) and Kinecta Credit Union, and it's entering its new fiscal year with more than twice the year-ago amount of cash on its balance sheet. Overall, 94% of the 2,812 CAPS members rating First Marblehead believe it will outperform the broader market.         

Ultimately, whether 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.

The Motley Fool Stock Advisor service looks for companies with strong management poised to beat the market over the long haul. To see all the stocks that have helped Tom and David Gardner beat the market by 60 points on average, take a free 30-day trial.

Fool contributor Dave Mock habitually looks for silver linings in even the darkest of clouds. He owns no shares of companies mentioned here. The Fool's disclosure policy is made of sugar and spice and everything nice.


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