Sift through the wreckage of beaten-down companies, and you'll likely find a few wonderful stocks. Lately, the stock market has blessed patient investors with plenty of thrashed financial companies.

But the savviest investors know that willy-nilly contrarianism isn't a sure path to riches. As financial disasters Countrywide Financial (NYSE:CFC) and Thornburg Mortgage (NYSE:TMA) illustrate, companies often get punished for all the right reasons. And in those cases, their plight can be as bad as you think, and worse.

With that in mind, I used our new Motley Fool CAPS screening tool to find beaten-down financial stocks that the online CAPS community loves to hate. These are the stocks CAPS players avoid like the plague.

They are also:

  • Capitalized at more than $200 million.
  • Down at least 25% over the past year.
  • Rated one star, the lowest possible rank, by our CAPS community.

Remember, in the first year for which we have data, one-star companies flamed out with an average loss of nearly 17%.

Company

Share Price

Market Cap

Price Drop

Ambac Financial (NYSE:ABK)

$1.91

$548 million

(97.8%)

Fannie Mae (NYSE:FNM)

$22.34

$21.8 billion

(65.8%)

Lehman Brothers (NYSE:LEH)

$22.80

$12.6 billion

(69.9%)

Merrill Lynch (NYSE:MER)

$34.54

$34.0 billion

(58.7%)

Washington Mutual (NYSE:WM)

$5.96

$6.3 billion

(86.0%)

Data from Motley Fool CAPS and Yahoo! Finance as of June 23. Price drop calculated from 6/29/07 through 6/23/08.

Are these companies poised for a turnaround? Or is the pain just beginning? Come and join us at CAPS to let us know what you think. Our 110,000-strong (and counting) CAPS community wants to hear your opinion.

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