3 Sinking Stocks for Savvy Investors

The second quarter of 2010 has been a bad one.

The broad market has declined by about 7.1% over the past three months, and because small-cap stocks are generally more volatile, they've experienced a bit of a greater drop. That's almost to be expected. However, what's interesting is that large-cap stocks have actually fallen a slight bit more than the broad index -- and these are the billion-dollar companies that usually hold up well in a recession or a double dip.

The good news is that now the market is ripe for cherry-picking. Hundreds of small and large successful companies have gotten hammered as of late, and that means there are some great value plays to be had.

In order to get you started, I've screened for stocks that have dropped significantly over the past three months and that are trading for very low price-to-sales ratios. In addition, we've utilized our 165,000-strong CAPS investing community to select only the best of the best, those companies with either a four- or five-star ranking. Here are three of the top companies from the list:

Outcome murky on stress tests
It's been quite a while since the EU sovereign debt crisis first started to ripple through the broader markets. EU finance ministers were hoping that if they put 91 different banks through various stress tests, then they would add transparency and accountability to the marketplace. However, last week the results were finally revealed, and investors have been less than ecstatic. While the biggest two banks in Ireland, Allied Irish Banks (NYSE: AIB) and the Bank of Ireland passed the tests, there are questions regarding their ability to raise the funds needed in order to meet their capital requirements. Also quite shocking was the fact that the National Bank of Greece (NYSE: NBG) also passed with flying colors -- investors are still skeptical about this institution not so much because of the bank's holdings, but rather about the eventual possibility of sovereign default and the effect it could have on the bank.

Either way, it seems as if the EU has implied many of these banks are just too big to fail. After falling by a whopping 50%, Bank of Ireland could be a steal if you think the credit markets may treat this sinking stock with kindness.

Not so powerful
Dynegy may be in the utility business, but lately its share price has been anything but powerful. Falling more than 45% in a 13-week time period is no easy feat, and I think a lot of the plunge has to do with expectations. Despite reporting a positive first quarter and net income of $145 million, the company experienced lower demand in its power segment. In early July, Moody's downgraded Dynegy as it expects reduced power margins and a weak outlook moving forward. While Dynegy has been at a near free fall all year, competitor Duke Energy (NYSE: DUK) has been able to stay relatively flat. With a lower debt-to-capital ratio and a fat dividend of 5.7% (Dynegy pays no dividend), Duke seems to be the safer bet if you feel like playing the utility field. (Also take a look at Exelon (NYSE: EXC), which pays a 5% dividend and controls a vast portion of our nation's nuclear power capacity). Which utility provider would you rather invest in?

Not everyone's a winner
The boom in wireless connectivity and the growth in smartphones certainly have boosted the top and bottom lines of many companies so far this year. But Alvarion, the WiMAX equipment provider, hasn't been one of them. The company reported second-quarter earnings and had a loss of $0.11 per share on bare-bone revenues of $49 million. To make matters worse, executives aren't providing guidance for the rest of the year because of the uncertainty regarding several projects in the pipeline.

While Alvarion is certainly feeling the heat as of late, management expects shipments to pick up in the second half of the year, so maybe it's just being prudent by not offering guidance at this point. Trading for less than the industry average and with higher gross margins, Alvarion is a four-star stock that our CAPS investors seem to love.

The foolish bottom line
Don't let fear get the best of you -- a falling or stagnant market can be a great thing in the long term if you take advantage of the opportunities in front of you. Fortunately for investors, there's no shortage of options, and both small- and large-cap stocks just happen to be some of the best around.