Individual stocks can surge 10%, 25% or more in a short period of time. And they can also fall just as far, just as quickly.
For example, shares of M/I Homes (MHO, news, msgs) tumbled 26% on Feb. 5 after the Columbus, Ohio, builder of single-family homes blamed "the most severe housing recession in decades, perhaps ever" for its $250 million loss for 2008.
A plunge in a company's share price might reflect a material defect or signal new risks in the marketplace. Fortunately, we have MSN CAPS, the community of investors helping each other beat the market, to help us see the larger picture behind the swoon.
CAPS is more than just the crowd's opinions. Its better-performing members' opinions do more to shape each company's ratings than the picks of their poorer-performing peers. That way, investors can intelligently use the collective wisdom of more than 125,000 CAPS participants to filter out the noise and find companies offering strong momentum.
The ratings and comments from CAPS members aren't always on the money, but there's value in a system that incorporates the knowledge, information and skills of thousands of participants. As wisdom-of-the-crowd experiments show, collective estimates are often superior to the estimates of most individuals.
We used CAPS' handy stock screening tool to zero in on companies with a market valuation of $100 million or more and whose shares had declined at least 20% over the past month. Additionally, we screened for stocks with a beta of less than 3. (Beta is a way of measuring risk in a portfolio; it describes how the expected return of a stock correlates to the return of the market as a whole.)
Below is a sample of stocks our screen uncovered.
| Company | Sector | 1-month change | Beta | CAPS rating |
|---|---|---|---|---|
Newspapers | -44% | 1.0 | * | |
Investments | -71% | 2.5 | ** | |
Conglomerate | -54% | 2.3 | *** | |
Paper | -40% | 1.5 | *** | |
Financial services | -39% | 1.1 | **** |
Red all over
Many CAPS participants are leery of the load of debt carried by The New York Times (NYT, news, msgs). And the $250 million loan recently provided by Mexican billionaire Carlos Slim doesn't necessarily signal that a turnaround is near.The company needs to pay off more than $1 billion in debt over the next few years, and even commanding a top brand in the newspaper industry doesn't count for much these days. Although Slim may have nabbed a great deal, just 38% of the 310 CAPS members rating the stock expect it to beat the market.
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Losing altitude
As corporations slash costs, aircraft makers such as Textron (TXT, news, msgs) and General Dynamics (GD, news, msgs) are seeing a significant decline in demand for business jets.Textron, maker of Cessna jets and Bell helicopters as well as E-Z-GO golf carts and lawn care machinery, posted a loss of $209 million for the fourth quarter. The Rhode Island company's finance business -- which provides financing for new and used Cessnas, golf courses, as well as to developers of vacation resorts -- was particularly hard hit by the deteriorating economy.
The company said it is thinking about selling some divisions to raise cash, if necessary. Yet a decent proportion of CAPS members -- 468 of the 512 rating the company -- think Textron will pull out of its dive and outperform the market.
The unkindest cut
Like Textron, International Paper (IP, news, msgs) swung to a loss in the fourth quarter. Officials at the Memphis, Tenn., company cited a sharp decline in demand for paper and packaging products, as well as several one-time charges. Still, sales rose 12% in the period, helped by last year's purchase of Weyerhaeuser's (WY, news, msgs) packaging business.International Paper expects demand to remain weak in 2009, and Goldman Sachs analyst Richard Skidmore worries that its dividend may be cut. But at CAPS, the view remains fairly bullish; 86% of the members rating the nation's biggest forest products company think it's poised to outperform the market.
Rhymes with sank
"Bank" truly is a four-letter word to many investors these days, but there may be opportunities among beaten-down providers of financial services.US Bancorp (USB, news, msgs) posted a 72% drop in earnings on Jan. 21, its eighth straight quarterly decline. The Minneapolis company said it had to set aside more money to cover bad loans in the quarter ended Dec. 31.
For the full year, however, US Bancorp earned almost $3 billion, and it had sufficient capital to acquire two failed banks in November. Its acquisition of Downey Savings and Loan brought US Bancorp $12.8 billion in assets, $9.7 billion in deposits and 213 branches in California and Arizona, and its deal for PFF Bank netted $3.7 billion in assets, $2.4 billion in deposits and 38 branches in Southern California.
A lot of financial institutions went under in 2008, and many CAPS members credit US Bancorp's conservative style with its relatively positive results.
Meanwhile, shares of small-business lender Allied Capital (ALD, news, msgs) plummeted last month after the Washington, D.C., investment corporation said it was having discussions with lenders to amend terms of credit agreements amid the ongoing financial meltdown.
Business-development companies such as Allied and American Capital (ACAS, news, msgs) have been in a desperate struggle to conserve cash as their investment portfolios crater.
How does the difference between the banks stack up in CAPS? Of the 454 CAPS members rating Allied Capital, 77% see it beating the market, while 93% of the 1,870 members rating US Bancorp see it outperforming the Standard & Poor's 500 Index ($INX).
What have you got to lose?
What's your story? Whether you buy the tale of a stock that's soaring or souring, your own research is more important than collective opinions. But collective opinions can make your due diligence a whole lot easier.Add your take on these or any of the 5,400 other stocks that our 125,000-plus members have covered in CAPS. It's totally free to be a part of the community and the payback can be more than worth it.
This article was reported and written by Dave Mock for The Motley Fool. At the time of publication, he owned none of the stocks mentioned.
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