5 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 Colonial BancGroup were cut by more than half when the company had mortgage-related losses drag third quarter income in the red to the tune of $71.2 million.

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 35% 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 the stocks our CAPS screen returned:

Source: Motley Fool CAPS. Price return from Oct. 3 through Oct. 27.

Overstock.com
It's all about the "O" these days -- cash flow, that is. In the case of online closeout retailer Overstock.com, this quarter's cash burn led to negative free cash flow despite revenue rising 17%. The company will also restate earnings for the past several years due to errors in an Oracle enterprise resource planning program. While the company is improving, Overstock is still way behind e-commerce profit king Amazon.com (NASDAQ:AMZN). As such, more than 69% of the 980 CAPS members rating Overstock.com expect it to continue to underperform the market.

UBS
Another one-star rated bank in CAPS, UBS is getting its bailout courtesy of Switzerland. The bank is expected to get about $5.2 billion from the government and split off as much as $60 billion of risky assets into a fund backed by the central bank. It expects to get rid of virtually all of its U.S. subprime related risk and hopes to get back to paying dividends in 2009. At this point though, CAPS investors aren't very optimistic, with only 57% of the 802 rating UBS expecting it to outperform the market.

Suntech Power
Solar stocks like Suntech and SunPower (NASDAQ:SPWRA) have been hit hard in 2008 -- financial turmoil and the fear of low oil prices slowing the need for alternative energy has some rethinking solar stocks. But more efficient and affordable solar technologies and improving manufacturing methods are reason for some to have a bullish long term outlook. Even though its current growth rates are likely unsustainable, many CAPS members still see a future of dramatic growth as more than 96% of the 3,955 rating the company expect it to bet the S&P.

Newmont Mining
Higher production costs are eating into Newmont Mining's bottom line and the firm is expecting the economic slowdown and high energy prices to continue to be a challenge. But like Barrick Gold, Newmont has a huge amount of proven and probable gold reserves, making it one of the better bargains among the major gold players. With this long-term potential, more than 93% of the 830 CAPS members rating Newmont Mining expect it to be able to tap these resources profitably and outperform the market.                 

Western Union
Investors didn't like hearing that money transfer company Western Union was withdrawing its long-term guidance and will now only provide it on a year-to-year basis. Shares hit new lows as it lowered this year's full-year profit guidance. But the company has solid financials, generates strong cash flow, and does nearly five times as much business as its closest competitor, MoneyGram International. Many feel that it has the size and global presence to make it through a bad economy. This gives 97% of the 1,019 CAPS members rating Western Union reason to be bullish.

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 5,400 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.