Get Ready for the Fall

"The bigger they are, the harder they fall." This old saying sums up the worst nightmare of every homeowner, every gold buyer, and every investor in today's market. Dare ye buy at the top?

Every day, Nasdaq.com publishes a list of the market's top stocks -- the companies whose shares have just hit their highest intraday price of any time in the past 52 weeks. Every day, investors read this list and tremble -- some with greed (big mo', baby!), and others in pure, unmitigated, acrophobic terror (whatever you do, don't look down).

Over on Motley Fool CAPS, thousands of investors just like you are watching these same companies and voting with their gut on whether they'll keep rising or stumble and fall. Usually, the ratings wax optimistic as stocks hit new highs, because everyone loves a winner. But what do you make of it when some of the smartest investors out there are panning a hot stock?

You could heed them. You could ignore them. You could take the stock tickers and construct anagrams from 'em. For my money, though, the best course of action is to use the "52 week high" list as just a starting point for further research. After all, stocks can go up for many reasons, and it's up to you to decide how worthy those reasons are. But thanks to Motley Fool CAPS, now you don't have to make the decision alone.

With that said, let's meet today's list of contenders, drawn from the latest "52 week high" list at Nasdaq.com. What does our panel of more than 60,000 stock gurus (and counting) have to say about them?

One Year Ago
Today

Currently
Fetching

CAPS Rating

United Fire & Casualty
  (NASDAQ:UFCS)

$28.14

$41.00

*****

Electro Scientific
  (NASDAQ:ESIO)

$17.51

$24.01

*****

Sirenza Microdevices 
(NASDAQ:SMDI)

$8.72

$14.17

****

Seabridge Gold
(AMEX:SA)

$13.43

$30.87

**

Ruddick  (NYSE:RDK)

$22.61

$35.67

**

Five stars = highest possible CAPS rating; one star = lowest. Companies are selected from the "NASDAQ 52 Week High" list published on Nasdaq.com on the Saturday following close of trading last week. One year ago and current pricing provided by Yahoo! Finance. CAPS ratings from Motley Fool CAPS.

Everybody loves a winner
When stocks soar on the wings of success, bears become rare. And, yes, despite some pretty impressive carnage on Wall Street last week, some stocks did still soar. Little wonder that investors rate these few (these happy few) so highly.

Er, most of them, that is. A couple of the stocks on today's list are getting, as the late, great, Mr. Dangerfield would have put it, "no respect" -- despite being among the few short-term winners in the market. Of the two, Seabridge Gold is clearly the more popular company (both to love, and to hate) on CAPS, but I'm going with little Ruddick for today's profile.

Why? Mainly out of personal interest. Ruddick, you see, owns the supermarket chain where Yours Fool-y does most of his grocery shopping. It took me a long time to figure out who hides behind the curtain at Harris Teeter. (Almost as long as it took to identify the owner of Trader Joe's. Hint: TJ's is owned by the same two guys who own Wal-Mart's (NYSE: WMT  ) worst Teutonic nightmare, Aldi.) Turns out, the legal entity behind the curtain at Harris is none other than two-starred CAPS stock Ruddick.

The bull case for Ruddick
•  Only one of our CAPS All-Stars has something nice to say about Ruddick. Namely, MaverickAtWork, who sees "lots of growth/store expansion for Harris Teeter in metropolitan markets and actual communities vying for more!"

•  But some voices from the lower ranks of CAPS are more optimistic. For example, JoramGFH calls this: "Another case of buying the companies I shop with. Ruddick's Harris-Teeter arm is an upscale supermarket that's absolutely booming in the Southeast. Clean, attractive, well-lit stores that are a genuine pleasure to shop in, products that run the gamut from house-brand cans to super-premium meats and cheeses, and prices that keep them competitive. Room to grow here, and the smarts to pull it off."

•  Meanwhile, khnckevin, while acknowledging that Ruddick is a "great company, not afraid to close stores not doing well," nonetheless asks: "Why still in textile business?"

The bear case against Ruddick
Why, indeed? As you may have noticed, the comments above don't really fit our usual theme in this column, where we seek out high-priced stocks, poised to plunge. So with naysayers in short supply, allow me to lead a stroll through Ruddick's dark side. Let's start with khnckevin's question. While Ruddick's biggest business is groceries, the firm also gets a good 10% of its sales from an odd source -- manufacturing and distributing industrial sewing thread, embroidery thread, and technical textiles.

If you're wondering what business this business has in a growing grocer, you're not alone. Not only would the thread business appear to be a distraction from Ruddick's core growth area -- Harris Teeter -- but it's also a drag on profitability. For while the thread biz gives Ruddick 10% of its sales, it generates just 1% of corporate profits. (Note: Feel free to turn this argument upside down, and consider the presence of the thread unit a potential profit driver for Ruddick -- if and when management decides to spin it off. Pardon the pun.)

Other objections to Ruddick might include its trailing P/E of 22, which looks rich against projected profit growth of 11% per year going forward. Worse yet, those high-priced profits aren't backed up at all by positive free cash flow. On the contrary, Ruddick generated negative $23 million in free cash flow over the past 12 months. Put all the above together, and I think you'll understand why Ruddick's 8% short interest is twice that of cheaper, cash-generating Safeway (NYSE: SWY  ) .

Time to chime in
That said, the aim of this column isn't just to tell you what I think about Ruddick, or even what our Foolish CAPS players believe. What we really want is to invite you to tell us what you think about the company. Is Ruddick's Harris Teeter the next Whole Foods? (And even if it is, is that a good or a bad thing?) Now is the time to tell us what you think, and CAPS is the place.

Fool contributor Rich Smith does not own shares of any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 230 out of more than 60,000 players. United Fire & Casualty is a Hidden Gems newsletter recommendation. Electro Scientific is a Pay Dirt pick. Wal-Mart has been singled out by the Motley Fool Inside Value newsletter team and Whole Foods by Motley Fool Stock Advisor. The Fool's got its disclosure policy all sewn up.


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