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 in AIG (NYSE: AIG) fell 22% one day last week just after shareholders approved a 1-for-20 reverse split in an effort to help prop up its share price and protect its listing on the NYSE.
Big drops in share price can sometimes signal material defects or new risks. But at other times, they're simply pullbacks along with the larger pessimism facing the market today. 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 135,000 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 25% in the last four weeks, and which have a market cap greater than $100 million and a beta of less than 3. If you want to run this screen for yourself, please do -- just keep in mind that the results will update with the market.
| Company | CAPS Rating | 4-Week |
|---|---|---|
| Alcatel-Lucent (NYSE: ALU) | ** | (26.1%) |
| Force Protection (Nasdaq: FRPT) | *** | (43.1%) |
| Cliffs Natural Resources (NYSE: CLF) | **** | (26.2%) |
Source: Motley Fool CAPS. Price return June 12 through July 7.
Alcatel-Lucent
Alcatel-Lucent recently signed a worldwide alliance with Hewlett-Packard (NYSE: HPQ), which is a positive for a company that's still losing money and struggling with debt. But some investors fear that Alcatel-Lucent could face some stronger competition now that Nokia Siemens will take hold of the CDMA and 4G assets of fallen Canadian giant Nortel for $650 million. Companies like LM Ericsson and Alcatel-Lucent have a strong position in the North American market today, with Verizon (NYSE: VZ) recently chosing Alcatel-Lucent for part of its next generation network roll-out. But Nokia Siemens has had North America in its sights for a while now, and investors see it as a more credible threat with this new purchase. At this point, only a weak 72% of the 522 CAPS members rating Alcatel-Lucent expect it to outperform the market.
Force Protection
Force Protection's shares recently took a hit when its Force Dynamics venture with partner General Dynamics, and other bidders like Navistar (NYSE: NAV) and BAE Systems, lost out to Oshkosh in the U.S. government's $1.1 billion contract to supply 2,244 MRAP all-terrain vehicles. The company then took a few more blows with a couple of downgrades from Wall Street analysts, as did its chassis supplier Spartan Motors. Although the company said that it expects relatively softer operating profits in the second quarter, it expects a stronger second-half and full-year performance due to strength in other businesses. While the contract loss was a significant setback, nearly 93% of the 837 CAPS members rating Force Protection still see opportunity in the company and expect it to beat the market.
Cliffs Natural Resources
Wall Street analysts recently cut earnings estimates for the next reported fiscal year for Cliffs Natural Resource, taking into account the iron ore miner's scaling back of production. While Rio Tinto has been selling iron ore in record amounts, Cliffs Natural Resources has recently deferred about 1 million tons of customer purchase obligations until the first quarter of 2010 due to weak demand from steelmakers. In April, the company said its iron ore mines were operating at about half of their annual capacity, and that its North American iron ore business is expected to produce about 15 million tons this year at higher costs compared to last year's output of 35.2 million tons. Though the near term offers little excitement for investors, nearly 97% of 1,083 CAPS members rating Cliffs Natural Resources remain 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 5,300 stocks that 135,000-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.
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