3 Stocks in a Tailspin

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, shares of specialty chemical maker Huntsman shed nearly half their value when the company reached a $1 billion settlement to let Hexion Specialty Chemicals off the hook for its promise to buy the company.

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 members' 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 120,000 CAPS members 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 20% in the last four weeks, and which have a market cap greater than $100 million and a beta of less than 3.

Here's a sample of stocks our CAPS screen returned:

Source: Motley Fool CAPS. Price return from Nov. 21 through Dec. 15.

XL Capital
XL Capital has certainly felt the effects of the market meltdown, and so has its balance sheet -- its deteriorating investments led to a $1.65 billion third-quarter loss. As such, the company joins AIG (NYSE:AIG) on the center stage as one of this year's worst-performing stocks in the S&P 500.

Shares of XL Capital lost another third of their value just last Wednesday, when word surfaced that the company had retained Goldman Sachs to "explore value-enhancing opportunities." Investors have little confidence that a good deal on a possible sale can be reached in these market conditions, especially considering XL's mounting losses. With the company stating that its investment losses in the fourth quarter are about equal to those from the third quarter, many anticipate that any deal for the company would give the buyer a steep discount. As such, only 48% of the 492 CAPS members rating XL Capital expect it to outperform the market.

Rio Tinto
Australian rival BHP Billiton (NYSE:BHP) ended its long pursuit of mining and metals player Rio Tinto last month, as anticipation of European Union demands to divest assets from the potentially combined company made the marriage much less attractive. The broken deal sent Rio Tinto's shares into a tailspin, and the company has unveiled a restructuring plan to deal with sinking commodities prices and the $40 billion in debt it tacked on to acquire Canadian aluminum producer Alcan.

Rio Tinto isn't alone. Peer companies like Cliffs Natural Resources (NYSE:CLF) and ArcelorMittal (NYSE:MT) are also cutting back, racing to curtail production in face of plummeting commodity prices. Rio plans to cut its workforce, operating costs, and capital expenditures, and it won't be raising its dividend as planned. Some investors believe that the rapid snapback in production may bolster commodity prices, and 96% of the 1,187 CAPS members rating Rio Tinto are bullish on the company at this point.

OmniVision
Image-sensor-device maker OmniVision reported a 30% drop in revenue to $164 million for its fiscal second quarter, with goodwill impairment charges knocking its earnings-per-share to a loss of $0.10. The company says its customers are being conservative right now, as the entire industry endures a drop in demand. Even though the company has $283 million in liquid assets and just $38 million in debt, it indicated that more bad times are coming, guiding for a $0.09- to $0.22-per-share loss in the third quarter. 

CAPS investors have mixed opinions of OmniVision,. Some see a very tough competitive environment because of lower-cost competitors in Asia, while others like its low share price coupled and good long-term outlook. Today, 94% of the 647 CAPS members rating OmniVision expect it to outperform the market.

Ultimately, whether or not you believe a fall in any stock's price 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 120,000-plus members 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.