5 stocks in a tailspin

By The Motley Fool

Individual stocks can surge 10%, 25% or more in a short time, but they can also fall just as far, just as fast. Witness the 51% plunge in shares of Thornburg Mortgage (TMA, news, msgs) after the company received a default notice March 6 from JPMorgan Chase (JPM, news, msgs), increasing the lender's risk of bankruptcy.

Big declines in share price can signal material defects or new risk in a company, but other times, they're simply pullbacks after a long run-up.

Fortunately, we have MSN CAPS, a resource to help you understand the larger picture behind big price drops.

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CAPS incorporates the knowledge, information and skills of more than 85,000 participants. The opinions of the best-performing investors have more weight in shaping the ratings attached to each company. This allows investors to intelligently employ collective estimates.

To put this into practice, we screened for companies with market values of at least $100 million and shares that have been slashed by at least 30% over the past month, among other factors designed to keep us out of the mud filled with gyrating penny stocks.

Here's a handful of the stocks our screen returned earlier this week.

Going down

Company	Industry	1-month decline	CAPS rating (out of 5)
Tessera Technologies	Microchip design	-60.6%	***
Crocs	Footwear and accessories	-39.5%	**
Nortel Networks	Network equipment and services	-37.9%	*
IndyMac Bancorp	Savings and loan	-32.2%	*
WCI Communities	Home building	-38.1%	*

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

Shareholders of Canadian network-equipment maker Nortel Networks (NT, news, msgs)have had few happy moments over the last several years. The company's been under constant reconstruction since the bursting of the tech bubble in 2000. An effort to overhaul the business produced apparent profits in 2003, but a bit of digging exposed alleged accounting tricks and further uncovered a business that was broken.

Shares dipped more than 13% on Feb. 27 after Nortel reported weak fourth-quarter financials and disappointed analysts with its outlook. The company cited numerous operating metrics to show its supposed progress, but Nortel still plans to cut 2,100 employees and send an additional 1,000 jobs to nations with lower-cost labor. With the economy struggling, Nortel doesn't have the benefit of the wind at its back. 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 who rate the company expect it to underperform the broader market.

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As patents and the protection of intellectual property become more critical to technology industries, some companies' stock prices seem largely subject to court-case outcomes. Tessera Technologies (TSRA, news, msgs) has seen its shares take a beating lately on 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 judge stayed Tessera's patent lawsuit against Motorola (MOT, news, msgs), Qualcomm (QCOM, news, msgs), Freescale and others while the U.S. Patent and Trademark Office reviewed the case.

While the market showed little mercy, Tessera shares did bounce up by 10% after the company issued a press release asserting that its patents are still in force and that company executives remain confident in the validity of the company’s intellectual property.

A majority of CAPS investors are confident in Tessera as well, with 161 of the 176 investors who have rated the company believing it will beat the Standard & Poor's 500 Index ($INX) 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, your own research is more important than collective opinions. Still, CAPS' collective knowledge can quickly focus an individual's due diligence and possibly point out pitfalls that otherwise may be overlooked.

Add your take on these or any of the 5,400 stocks covered in MSN CAPS. It's free to be a part of the community, and the payback is more than worth it.

This article was reported and written by Dave Mock for The Motley Fool.