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 Rosetta Stone fell 27% on Monday after it cancelled a secondary offering and issued a weak outlook.
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 135,000 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 which 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.
|
Company
|
CAPS Rating
(out of 5)
|
4-Week
Price Change
|
|
THQ (Nasdaq: THQI )
|
**
|
(30.8%)
|
|
First Solar (Nasdaq: FSLR )
|
**
|
(21.4%)
|
|
InterDigital (Nasdaq: IDCC )
|
****
|
(20.4%)
|
Source: Motley Fool CAPS. Price return July 24 through August 18.
THQ
Market researcher NPD Group recently reported that U.S. retail sales of video games took a 29% dive in July compared to last year, making it the fifth straight month of declines. That rocky market didn't seem to affect game maker THQ much. THQ was carried through its fiscal first quarter on the strong release of "UFC 2009 Undisputed" and "Red Faction: Guerrilla," titles that helped it increase revenue by 77% and turned last year’s loss into a $0.09 quarterly profit. However, it looks like the gain may be short-lived. Whereas competitor Activision Blizzard (Nasdaq: ATVI ) has a strong fall line-up of new releases, THQ has no major releases due and has seen weak sales of its older games, giving investors more incentives to sell shares lately. Rubbing more salt in investors' wounds, the company also offered a weak forecast and announced a $90 million offering of convertible notes. At this point, only 81% of the 302 CAPS members rating THQ expect it to outperform the broader market.
First Solar
In many ways, U.S. thin-film solar company First Solar gave a strong second-quarter report, with net income rising 159% over last year, but a recent Barron's article pointed out the company's negative free cash flow and questioned its earnings quality. As competition gets tougher, the company also announced that it will offer rebates in Germany, its largest market, to counter price cuts from competitors. Some investors also anticipate things to get even uglier as rivals such as Canadian Solar (Nasdaq: CSIQ ) and Suntech Power (NYSE: STP ) price their panels aggressively in Europe. In CAPS, 79% of the 3,691 members rating First Solar expect it to beat the S&P.
InterDigital
As a holder of a vast portfolio of patents for cell phone technology, InterDigital had patent royalties account for 98% of its revenue in the first six months of this year. No surprise, then, that shares were punished when a U.S. International Trade Commission judge ruled that Nokia didn’t infringe on InterDigital's patents after the Finland-based company refused to pay royalties for certain wireless technologies. InterDigital hopes to eventually settle with Nokia like it did with Samsung Electronics last year, which could also help it secure licenses from others like Motorola (NYSE: MOT ) and Sony Ericsson. Investors are holding out hope for eventual victory, and 95.6% of the 1,040 CAPS members rating InterDigital are bullish.
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 5,300 stocks that 135,000-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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