Individual stocks can surge 10%, 25%, or even higher in a short period of time -- but they can also fall just as far, and just as quickly. Witness the 51% plunge in shares of Thornburg Mortage (NYSE:TMA) Thursday, after it received a default notice from JPMorgan Chase, increasing the lender's risk of bankruptcy.  

Big drops in share price can also signal material defects or new risk in a company, but 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 85,000 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 30% 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

Tessera Technologies (NASDAQ:TSRA)






Nortel Networks (NYSE:NT)



IndyMac Bancorp (NYSE:IMB)



WCI Communities (NYSE:WCI)



Return data is calculated as the difference between the closing price on Feb. 1 and the closing price on March 6, as per MSN Money's screen. Star ranking from CAPS. Data as of March 6.

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

More than once bitten...
Shareholders of Canadian network equipment maker Nortel Networks have had few happy moments over the last several years. The company's been under constant reconstruction since the bubble burst in 2000, and while investors were briefly fooled with profits in 2003 after a few years of overhauling the business, a bit of digging exposed accounting tricks and further uncovered a broken business.

While it wasn't the worst of companies reporting earnings a few weeks back, Nortel's weak fourth-quarter financials and outlook nonetheless pushed the stock down more than 13%. The company cited numerous operating metrics to show its supposed progress, but Nortel still plans to cut 2,100 employees and send another 1,000 jobs to nations with lower-cost labor.

With the economy trudging towards a level worse than many thought, Nortel doesn't have the benefit of the wind at its back either. While some Nortel bulls are betting that the company has bottomed, many don't see a turnaround yet -- if ever. Indeed, 61 out of the 100 CAPS All-Stars rating the company expect it to underperform the broader market in the future.

Patently unobvious
As patents and the protection of intellectual property become even more critical to technology industries, some companies' stock prices seem largely subject to court case outcomes. Tessera Technologies has seen its shares take a beating lately, following setbacks in the company's attempts to take legal action against peer technology companies for alleged use of Tessera's inventions.

In the past month, a U.S. International Trade Commission (ITC) judge stayed Tessera's case against Motorola, Qualcomm (NASDAQ:QCOM), Freescale, and others while the Patent and Trademark Office reviewed patents central to the case. While the market showed little mercy, stock in Tessera did bounce up by 10% after the company issued a press release last week clarifying that its patents are still in force during initial office actions, and that it remains confident in the validity of its intellectual property.

A majority of CAPS investors are confident in Tessera as well, with 161 of the 176 investors rating the company believing it will beat the S&P going forward. But enough bears have come out against Tessera over the past few months to drop its rating to only three stars, as more uncertainty now swirls around its legal actions.

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 85,000-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.