5 Stocks in a Tailspin

Just as individual stocks can surge by 10%, 25%, or even more in a short period of time, they can also fall just as far and just as quickly. Witness the nearly 48% plunge in shares of RH Donnely yesterday, as the first-quarter outlook and the departure of a business group executive turned investors sour on the company.

Big drops in share price can also signal material defects or new risk in a company, but other times they're simply a pullback after a long run-up. Fortunately, we have Motley Fool CAPS -- a great resource to help understand the larger picture behind big price drops.

Is the sky falling?
CAPS contains more than just the opinions of a crowd; its best-performing investors' opinions do more to shape each company's rating than do the picks of their poorer-performing peers. This way, investors can intelligently use the collective wisdom of more than 85,000 CAPS investors -- and their respective track records -- to make better investing decisions.

To put this approach in practice, we'll screen for companies with a stock that has been slashed by at least 25% in the past month, with a market cap of greater than $100 million, and possessing a beta of less than 3. That'll keep us out of the mud filled with gyrating penny stocks.

Here's a sample of stocks our screen returned.

Return data is calculated as the difference between the closing price on Jan. 25 and the closing price on Feb. 28, per MSN Money's screen. Star ranking from CAPS. Data as of Feb. 28.

Let's add a little more color to recent circumstances and find out why some of these stocks have been beaten so badly.

Solar flares
The solar sector has been one hot growth story over the couple of years, but a burnout phase is putting the crimp on many companies chasing the clean-energy solution. Suntech Power is taking its turn in the shade now, as have fellow Chinese producers Trina Solar (NYSE:TSL) and Yingli Green Energy (NYSE:YGE). Voracious demand that built up over the past few years has led to highly optimistic expectations from analysts. The average hope for revenue of $455 million next quarter was dashed recently, though, when Suntech projected sales to be only between $370 million and $380 million.

The solar business is still very early in its growth stage, so the pullback in solar stocks is not an indication of a market with dim prospects. The determination of where Suntech shares might be in the future is a complex issue, however. Certainly, the producers of solar silicon and integrated modules will have more up and down cycles as they battle between supply constraints and market demand. But the long-term prospects of solar players are also heavily influenced by regulations in countries that encourage green energy sources.

Suntech carries numerous advantages in its low-cost manufacturing capability that position it well as the technology evolves and efficiency improves. In general, CAPS investors have a favorable view of the company, with 96% of the 2,570 investors rating the company believing it will outpace the S&P in the future. While a few bears point to the threat of competition from new, innovative solar technologies, most pessimists hang their hat on what they see as a high valuation based on too much solar hype.

Familiar cycle
Wireless data card and modem provider Novatel Wireless has seen a similar boom and bust cycle over the past year, but for different reasons. The wireless-equipment company saw sales surging through 2007, as revenue almost doubled with the increasing demand for wireless broadband services in the U.S. from mobile-laptop junkies. But the outlook for growth has been subdued in the past few months, and shares have spiraled down.

But with its strong balance sheet and a current earnings multiple of just 9, this Fool is inclined to side with the 170 out of 182 CAPS investors who think Novatel will eventually nose up and beat the market.

Ultimately, whether you believe the reasoning behind a fall in any stock, your own research is more important than collective opinions. But these collective opinions can quickly focus an individual's 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 85,000-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.