Get Ready for the Fall?

"The bigger they are, the harder they fall." It's the worst nightmare of every investor in today's market -- buying a rocket stock just before it takes a nosedive.

Every day, WSJ.com publishes a list of stocks whose shares have just hit new 52-week highs. And every day, investors read the list and tremble -- some with greed, others with terror. On our Motley Fool CAPS investing community, these top stocks usually enjoy favorable ratings, since everyone loves a winner.

But not always ...

Companies are selected from the "New Highs & Lows" lists published on WSJ.com on Thursday last week. 52-week low and recent price provided by Yahoo! Finance. CAPS ratings from Motley Fool CAPS.

Everybody loves a winner
As stocks soar on the wings of success, bears become rare, so it's no surprise that as we scan the list of last week's 52-week high-hitters, four- and five-star ratings abound. These stocks have produced big gains for investors already, and CAPS members are confident that there's more profit in store for us going forward. But which stock is best positioned to reward investors in the New Year?

Let's find out, as we review ...

The bull case for Emerson Electric
CAPS member Sadalmelik commends this large-cap conglomerate for its ability to generate "[g]ood steady income" and maintain a healthy balance sheet even in the midst of the Great Recession. alfred13 seconds the emotion, and argues that Emerson will "do disproportionately better as the economy improves." He also points out the firm's "dependable diviidend" as a factor in its favor.

And Vaelon makes it unanimous, calling Emerson a "[w]ell managed company which has consitently delivered growth and will continue to do so. Collect the dividend while you wait."

The Foolish buyer's checklist
So let's see now -- growth? Check. Profitable growth? Double check. And a steady stream of dividend checks, to prove to us that the profit is backed up with real cash? Check, check, check. All systems look "go" so far, but there's just one more item we need to confirm here: the price. At nearly 20 times earnings, with a dividend yield of 3% and long-term growth projected at 11.5% per year, Emerson doesn't look crazy overpriced. But it does cost more (on a P/E basis) than similar conglomerates such as General Electric (NYSE:GE) or Honeywell (NYSE:HON). The question then becomes: Is Emerson worth the "premium"?

Actually, yes, it is. You see, Emerson's P/E may look a bit high, but that's because it is based on the firm's reported earnings under GAAP -- earnings that don't do justice to this company's incredible cash-generating prowess. Dig a little deeper and examine the firm's cash flow statement, and you'll find that Emerson actually generated nearly 50% more free cash flow than it reported as "net earnings" over the past year -- $2.6 billion in free cash.

Foolish takeaway
Fools, that means that Emerson trades for just 13 times free cash -- and I'd argue it's a bargain price to pay for a steady, profitable, dividend-paying grower of this stature. Emerson stock is not going to set the world on fire with its speed of growth, but there's something to be said for finding a cheap stock, with a sturdy dividend, here in the midst of a pretty frothy market.

(But enough about me. What do you think about Emerson Electric? Click through and sound off.)