Individual stocks can surge 10%, 25%, or even higher in a short period of time -- but they can fall just as far, and just as quickly. Witness the 28% plunge in shares of Wellpoint on Tuesday after the company admitted that all is not well and it cut expectations for profits in 2008.  

Big drops in share price can also signal material defects or new risk in a company, but at other times, they're simply pullbacks 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 crowd's opinions. Its best-performing investors' opinions count more in shaping each company's rating than the picks of their poorer-performing peers. This allows investors to intelligently use the collective wisdom of more than 86,000 CAPS investors -- and their respective track records -- to make better investing decisions.

To put this in practice, we'll screen for companies with a stock that has been slashed by at least 25% in the past month, a market cap of greater than $100 million, and 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.


CAPS Rating
(out of 5)

Price Change

Level 3 Communications (Nasdaq: LVLT)



Sprint Nextel (NYSE: S)



Countrywide Financial (NYSE: CFC)



Fannie Mae (NYSE: FNM)



Freddie Mac (NYSE: FRE)



Return data is calculated as the difference between the closing price on Feb. 8 and the closing price on March 13, as per MSN Money's screen. Star ranking from CAPS. Data as of March 13.

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

House of horrors
A company that has had its stock in a tailspin all year, Countrywide Financial, just pushed the stick farther down to drive the stock to its lowest price in more than a decade. In the past month, investors have gone from pricing Countrywide roughly in line with the buyout offer from Bank of America (NYSE: BAC) to pricing it significantly below the value of the deal. Investors appear to be getting more nervous as the economy worsens on a daily basis; more homeowners are defaulting, and Countrywide is left holding the bag of debt.

The worsening credit market is also a factor, as well as reports that federal investigators are giving more attention to Countrywide in hopes of finding some form of culpability for lending practices that made some very rich -- including Countrywide CEO Angelo Mozilo -- while others went homeless.

Investors have been shoring up positions on both sides of Countrywide, however, with many seeing the continuous flow of bad news as an opportunity to get valuable assets for cheap. If the B of A merger does go through, many argue that buying now is just like getting $1 for about $0.70. But many CAPS investors believe the company may be on its deathbed, and they feel the arbitrage doesn't outweigh the risks that may still lay below the surface with Countrywide. Indeed, 69% of the 518 CAPS All-Stars rating the company are bearish on the stock.

Nextel ... done
I've already commented quite a bit on the demise of Sprint Nextel. The company has largely destroyed the value acquired from Nextel when the two merged in 2005. But with 53.8 million wireless subscribers still paying their bills, there is value in the company at some price.

Recent speculation even swirls around Verizon (NYSE: VZ) possibly acquiring the struggling telecom, as both use a similar technology platform for most of their wireless subscribers. But an acquisition is a risky play for other major telecoms that are mostly doing just fine by themselves -- and stealing Sprint Nextel's customers along the way.

CAPS investors are still split on the right price for Sprint Nextel, but enough bears remain to keep the stock at a subpar two-star rating. Overall, almost 28% of the 914 investors rating Sprint Nextel believe it will underperform the broader market.

Ultimately, whether you believe the reasoning behind a fall in any stock, your own research is more important than collective opinions. Still, CAPS' 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 86,000-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.

The Motley Fool Inside Value team sees value in shares of Sprint Nextel -- and dozens of other stocks. To see just what the analyst team has pegged as Sprint Nextel's buy-below price, take a free 30-day trial.

Fool contributor Dave Mock habitually looks for silver linings in even the darkest of clouds. He owns no shares of companies mentioned here. Bank of America is an Income Investor choice. Dave is the author of The Qualcomm Equation. The Fool's disclosure policy is made of sugar and spice and everything nice.