Individual stocks can rise 10%, 25%, or even higher in a short time. And they can fall just as far, just as quickly. For example, shares in Sterling Financial lost nearly half their value last week when the company announced that it would suspend its dividend and expects to report a loss for the fourth quarter.
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 includes 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 use the collective wisdom of more than 125,000 CAPS members to make better decisions.
We'll use CAPS' handy stock screening tool to zero in on companies whose share prices have fallen by at least 20% in the past 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.
Here's a sample of stocks our CAPS screen returned:
|
Company
|
CAPS Rating
(out of 5)
|
4-Week
Price Change
|
|
SunTrust Banks (NYSE: STI )
|
*
|
(31.7%)
|
|
Rambus (Nasdaq: RMBS )
|
***
|
(41.1%)
|
|
Wells Fargo (NYSE: WFC )
|
***
|
(36.4%)
|
|
Genworth Financial (NYSE: GNW )
|
***
|
(29.8%)
|
|
Aluminum Corp. of China (NYSE: ACH )
|
****
|
(23.2%)
|
Source: Motley Fool CAPS. Price return from Dec. 19 through Jan. 16.
SunTrust Banks
Shares in regional banks like SunTrust and Regions Financial (NYSE: RF ) retreated again last week when Milwaukee-based Marshall & Ilsley reported a fourth-quarter loss and slashed its dividend, making investors skeptical about other bank yields. The news sparked new concerns about the health of the overall sector as well. SunTrust received another analyst downgrade because of its exposure to real estate and the continuing deterioration of the credit market. Today, only 61% of the 546 CAPS members rating SunTrust Banks expect it to outperform the market.
Rambus
The shares of memory technology company Rambus soared in the final weeks of 2008 after a favorable pretrial ruling in one patent suit against multiple chip makers. But the stock has lost much of those gains ever since a judge barred Rambus from enforcing patents against Micron Technology (NYSE: MU ) and ruled that Rambus destroyed documents in another case. With the defendants of Rambus' various lawsuits making up a large portion of the DRAM market, the outcomes will decide a huge portion of the company's future royalty income. In CAPS, 83% of the 438 members rating Rambus expect it to beat the market.
Wells Fargo
Investors who thought the worst in the banking sector had passed got another dose of reality when Wells Fargo shares dropped on the heels of Friedman, Billings, Ramsey issuing an unfavorable outlook on Well Fargo's tangible common equity ratio because of the Wachovia acquisition. It didn't help that Bank of America reported a $1.79 billion loss for the fourth quarter. And with U.S. mortgage foreclosure rates showing no sign of losing steam, many banks remain exposed to continued losses. But even with these risks, 89% of the 3,261 members rating Wells Fargo remain bullish.
Genworth Financial
With its shares having fallen more than 90% over the past year, the life and mortgage insurer has cut jobs in response. Mortgage exposure has led to large losses, and Genworth Financial hopes to be approved to become a savings and loan holding company, the way Hartford Financial and Lincoln National have, so it can seek federal aid. Many investors are bullish on a bailout of it, and 91% of the 374 CAPS members rating Genworth Financial expect it to outperform the market.
Aluminum Corp. Of China
China's manufacturing sector has been in a downhill slide, causing this company to cut its output. To help inject demand and keep the economy moving, China recently announced that the State Reserves Bureau will purchase about $540 million of aluminum from Chinese smelters. The government support keeps many investors bullish, and 96% of the 3,539 members rating Aluminum Corp. of China, or Chalco, in CAPS expect it to beat the market.
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 nearly 5,400 stocks that 125,000-plus members have covered in Motley Fool CAPS.
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