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 in GM plunged more than a quarter in value two days in a row as the Obama administration forced out its CEO and the company warned of a rising chance of bankruptcy.
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 130,000 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 that 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.
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Company
|
CAPS Rating
(out of 5)
|
4-Week
Price Change
|
|
AeroVironment (Nasdaq: AVAV )
|
***
|
(34.2%)
|
|
GMX Resources (Nasdaq: GMXR )
|
***
|
(32.0%)
|
|
Arena Pharmaceuticals (Nasdaq: ARNA )
|
***
|
(27.6%)
|
Source: Motley Fool CAPS. Price return March 6 through March 31.
AeroVironment
AeroVironment has experienced large growth producing unmanned aerial vehicles (UAVs). Military and defense organizations around the world are showing increased interest in the air tech, whose producers also include Honeywell (NYSE: HON ) and Boeing (NYSE: BA ) . But shares took a beating recently after AeroVironment reported a 24% drop in fiscal third-quarter profit and projected a reduced revenue outlook for fiscal 2009. According to the company, the recession and timing of orders are to blame for the lower outlook, but the company has a funded backlog sitting at record levels -- up 100% over last year. Plus, it's been generating solid free cash flow. Shares may not be cheap enough for everybody, but 94% of the 510 CAPS members rating AeroVironment see it beating the market.
GMX Resources
Lower oil and gas prices, along with impairment charges, pushed exploration and production company GMX Resources to a fourth-quarter net loss of $111 million, despite increased production in the quarter. In 2009, the company is putting nearly all of its focus on its Haynesville/Bossier horizontal drilling program, where it sees ginormous opportunity. Management is guiding for an 86% growth in natural-gas production over last year.
But GMX Resources has had its share of issues to confront lately, as the recent decline in its share price has sparked some shareholder activism. The company's largest shareholder, Centennial Energy Partners, is calling for the firm to put itself up for sale. Many CAPS members see hope for the company, though, as nearly 94% of the 264 rating it expect it to outperform the market.
Arena Pharmaceuticals
Arena Pharmaceuticals has a lot riding on its obesity treatment, lorcaserin; the firm has dumped millions into its development. However, at this point, the only weight being lost is on the bottom line of the company -- in the fourth quarter, increased development costs led to a wider loss of $62.5 million at the firm.
Arena hopes its candidate will show fewer side effects than attempts by Sanofi-Aventis (NYSE: SNY ) and Merck (NYSE: MRK ) to create a successful obesity drug. But its recently announced late-stage study results for lorcaserin have some investors questioning its earnings potential. While the drug showed a good safety record, patients experienced only modest weight loss. More phase 3 study results are expected in September, and at this point, 94% of the 417 CAPS members rating Arena Pharmaceuticals 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 more than 5,300 stocks that 130,000-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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