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, last week, shares of consumer finance company CIT Group put in a miserable performance and dropped more than 37% after the company reported that its quarterly loss widened to $317.3 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've used 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 Sept. 26 through Oct. 20

Sears Holdings
It’s a tough time for retailers with just about everyone expecting a bleak holiday shopping season. Some also see Sears losing ground to discount retailers such as Wal-Mart and Costco (NASDAQ:COST) that do a better job attracting bargain shoppers. With same-store sales at its Sears, Roebuck and Kmart stores falling for more than two years, a 62% drop in profits in the second quarter, and further turmoil in the top ranks, investors are more pessimistic about a turnaround anytime soon. A less-than-convincing 79% of the 1,996 CAPS members rating Sears Holdings expect it to outperform the market.

Wynn Resorts
While gambling purveyors can hold up surprisingly well during recessions, Wynn Resorts is coming up one cherry short this quarter and says its Vegas operations could post anywhere from a $2 million loss to a $2 million gain. But the company, and many investors, expects its Macau resorts to pick up the slack. CAPS members aren't fully convinced that Wynn is on a roll, as only 82% of the 691 members rating Wynn Resorts expect it to beat the market.

American Express
It's been no secret that resilient consumer spending over the past decade has kept the market chugging along, but reality is setting in that consumers can no longer enjoy debt with virtually no limits. Unlike Visa (NYSE:V) or MasterCard, American Express finances its own transactions, making it vulnerable to slowing consumer spending and deteriorating credit markets. Provisions for bad debts jumped 51% this quarter, and net loan write-offs rose to 5.9%, from 3% a year ago. A long track record of stable earnings and a global franchise keeps long-term investors bullish, though, and 91% of the 2,513 CAPS members rating American Express expect it to outperform the market.

Best Buy
Another company directly exposed to consumers' tightening wallets is retailer Best Buy. Yet despite second-quarter net income dropping about 19%, revenue rose 12%, with same-store sales increasing by 4.2%. The company also kept fiscal 2009 guidance unchanged and continues to try innovative ways to stay a step ahead of competitors. With shares at a level well below historical premiums, many see a good opportunity to buy a proven retailer for cheap. More than 88% of the 2,728 CAPS members rating Best Buy agree and have voted for the stock to beat the S&P.

Petroleo Brasileiro
Despite lower oil prices, operations at Brazilian oil titan Petroleo Brasileiro continue to produce, reaching a record oil production output in September, up 7.6% from a year ago. The company continues to move ahead with significant offshore development, too, and has been stringing together several impressive discoveries off the coast of Brazil. Despite the recent sell-off in shares, many CAPS members remain bullish on the stock, with more than 98% of the 3,204 CAPS members rating the company expecting it to outperform the market.

Ultimately, whether 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.