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, graphic-chip maker Nvidia (Nasdaq: NVDA ) set off some fireworks before the holiday with an earnings warning that lead to a 31% drop in a single day.
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 30% 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
|
|
Circuit City (NYSE: CC )
|
*
|
(43.2%)
|
|
Freddie Mac (NYSE: FRE )
|
*
|
(39.5%)
|
|
MercadoLibre (Nasdaq: MELI )
|
****
|
(30.9%)
|
|
ReneSola (NYSE: SOL )
|
****
|
(32.4%)
|
|
Manitowoc (NYSE: MTW )
|
*****
|
(34%)
|
Return data is calculated as the difference between the closing price on June 10 and the closing price on July 8, 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.
Circuit City
After Blockbuster turned tail and left retailer Circuit City at the altar, shares of the consumer-electronics store continued their fall, leaving them at less than half the $6 a share that Blockbuster intended to pay. With many investors believing there are few options to turn Circuit City around, 54% of the 1,202 CAPS investors rating Circuit City think it will continue to underperform the market.
Freddie Mac
With its subordinated debt and preferred shares at serious risk of being downgraded, shares of Freddie Mac have continued their downward spiral. With rating agencies looking forward to the next earnings report, many investors have decided to act now and sell. With the prospect of raising additional capital costly at best, CAPS investors have soured on Freddie Mac as well -- of the 812 investors rating the company, a full 427 remain bearish.
MercadoLibre
Latin American e-commerce website MercadoLibre had a solid IPO last year, but now sits more than 60% off its peak six months ago. A heady valuation and very public struggles by online barter king eBay (Nasdaq: EBAY ) have likely contributed to the downward pressure on shares. But MercadoLibre is expanding rapidly through Latin America, giving a solid contingent of CAPS investors reason to be bullish. Indeed, 96% of the 613 investors rating MercadoLibre see it outperforming the market in the future.
ReneSola
While solar companies like LDK Solar and Solarfun Power were busy signing new supply contracts last week, Renesola was counting its share-price losses. While demand for solar silicon wafers has been good, ReneSola has been spending heavily to expand; it issued more than 8.6 million new shares in a recent offering. Even considering the dilution from raising capital, CAPS investors remain largely in favor of ReneSola, with nearly 98% of the 526 who’ve rated the company calling for shares to outperform the market.
Manitowoc
Manitowoc recently outbid Illinois Tool Works in an auction to buy British kitchen-equipment maker Enodis. The deal is expected to add to Manitowoc’s earnings this year and generate significant cost-saving synergies. But shares have fallen steadily over the past month, showing that even a long-term winner like Manitowoc is prone to a sizeable drop from time to time. Despite the recent fall, 98% of the 1,064 CAPS investors rating the company think it will outperform 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 5,500 stocks that 110,000-plus investors have rated 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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