5 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, retailer Circuit City (NYSE: CC  ) was one of Monday's worst stocks, dropping 21% after announcing decreased earnings last week as the outlook for its future as a stand-alone entity became cloudier.

Big drops in share price can sometimes signal material defects or new risks. But at other times, they're simply pullbacks after a long run-up. 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 investors' 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 110,000 CAPS investors 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 25% in the last four weeks, and which have a market cap greater than $100 million and a beta of less than 3. That'll keep us out of the mud-filled world of gyrating penny stocks.

Here's a sample of stocks our CAPS screen returned:

Company

CAPS Rating
(out of 5)

4-Week
Price Change

SunTrust Banks (NYSE: STI  )

*

(29.7%)

SanDisk (Nasdaq: SNDK  )

****

(25.6%)

Coventry Health Care (NYSE: CVH  )

****

(33.1%)

Aluminum Corp. of China (NYSE: ACH  )

*****

(30.4%)

Infinera (Nasdaq: INFN  )

*****

(34%)

Return data is calculated as the difference between the closing price on May 27 and the closing price on June 24, per Yahoo! Finance. Star rankings from CAPS.

Let's delve deeper into recent circumstances and find out why some of these stocks have been beaten so badly.

SunTrust Banks
It's been bad for shareowners of SunTrust Banks, and the general consensus with CAPS investors is that it's not going to get any better. With 119 of the 344 investors rating the company expecting it to underperform the market, the large position the company holds in stalwart Coca-Cola -- and the money it cashed out of shares in the Visa (NYSE: V  ) IPO -- hasn't convinced many skeptics that this financial firm actually stands on pretty solid ground.

SanDisk
It wasn't long ago that things were looking up for storage device maker SanDisk, but what the market giveth, the market taketh away. A few analysts have changed their tune on SanDisk and grown more bearish on the stock based on industry-wide trends. While the company still managed to earn $0.08 per share on sales of $850 million last quarter, competitors Intel and Micron have cut back on plans for flash memory growth, indicating that price pressures could remain in the near term. Still, 93% of CAPS investors rating the company expect SanDisk to outperform the market.

Aluminum Corp. of China
Ditto the momentum reversal for shares of Aluminum Corp. of China, or Chalco; the major alumina producer is taking a hit from the announcement that China will raise gasoline and diesel prices immediately by 17% and 18%, respectively. While the free ride may be over, more than 97% of the 3,190 CAPS investors rating the company remain bullish about Chalco's prospects to beat the market.

Infinera
Digital optical communications system developer Infinera hit its limit last week when it announced reduced guidance in the coming quarter, dropping the stock more than 25% in one day. Infinera continues to further penetrate networks around the globe, though, and recently announced a completed deployment in Virginia with Cox Communications. With the lower price on shares and future growth prospects, CAPS investors remain overwhelmingly bullish on Infinera, with nearly 98% of the 757 investors rating the company optimistic that the stock will outrun the S&P.

Coventry Health Care
After drastically cutting its second-quarter and full-year earnings forecasts, citing unexpectedly high claims and inpatient unit costs, worried investors have punished shares of Coventry Health Care and other managed-care stocks like Aetna. But Coventry has experienced many down periods in the past, only to come roaring back and gain hundreds of percentage points over the long term. Many CAPS investors are betting on "roaring back" this time, too; nearly 96% of the 801 investors rating the company are bullish.

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 5,500 stocks that 110,000-plus investors 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.

Infinera is one of dozens of stocks selected by the Motley Fool Rule Breakers service to beat the market over the long haul. To see all the stocks David Gardner and the analyst team have recommended, take a free 30-day trial today.

Fool contributor Dave Mock habitually looks for silver linings in even the darkest of clouds. He owns shares of Coca-Cola and Intel and is the author of The Qualcomm Equation. Coca-Cola and Intel are Inside Value recommendations. Coventry Health Care is a Stock Advisor pick. The Fool owns shares of Infinera. The Fool's disclosure policy is made of sugar and spice and everything nice.


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