"The bigger they are, the harder they fall." It's the most bone-shivering nightmare of every investor in today's market -- buying a hot stock right before it takes a nosedive.
Every day, Nasdaq.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 -- everyone loves a winner. But what should you do when some of CAPS' smartest investors pan one of these hot stocks?
For starters, consider using the 52-week-high list as a starting point for further research. Stocks rise for many reasons, but a little help from Motley Fool CAPS can make it easier for you to figure out how worthy those reasons are. Let's see what the more than 82,000 (and counting) stock gurus in CAPS have to say about the list's latest contenders:
|
One Year |
Currently Fetching |
CAPS Rating
|
|
|---|---|---|---|
|
Fording Canadian Coal |
$21.62 |
$44.21 |
***** |
|
Agnico-Eagle Mines |
$39.63 |
$62.74 |
**** |
|
Walter Industries |
$27.95 |
$40.83 |
**** |
|
CONSOL Energy |
$34.15 |
$73.01 |
*** |
|
Capstead Mortgage |
$7.95 |
$15.60 |
* |
Companies are selected from the NASDAQ 52 Week High list published on Nasdaq.com on the Saturday following close of trading last week. But because that site was on the fritz this weekend, today's list comes from Barchart.com.
One year ago and current pricing provided by Yahoo! Finance, as of that date. CAPS ratings are from Motley Fool CAPS.
Everybody loves a winner
When stocks soar on the wings of success, bears become rare. When they do so in the midst of a bear market, that only increases investor loyalty, so it comes as no surprise that most of the stocks on today's list enjoy above-average ratings from the CAPS community. In fact, only one company on today's list enjoys below-average marks. Better sit down for this, 'cuz I know you'll be surprised to learn that it's the one with "mortgage" in its name.
Shocker, I know. But let's suspend judgment for a moment and see why investors don't like Capstead Mortgage.
The bear case against Capstead Mortgage
Capstead describes itself as "a self-managed real estate investment trust [whose] core strategy is managing a leveraged portfolio of residential mortgage securities consisting primarily of ARM securities issued and guaranteed by government-sponsored entities, either Fannie Mae
- CAPS All-Star stabfederline warned of Capstead more than a year ago: "Book value's fine but they're borrowing up to their ears."
- Borrowing to buy what, you ask? The No. 2 CAPS player in all the land, TDRH, has the answer in this to the point pitch from last summer: "ARMs."
- Back in October, when the subprime market was starting to come well and truly unglued, BEWalsh13 wasn't comfortable with Capstead's "Debt to Equity ratio of 15.4, and negative earnings flow." Nor did he like the fact that its "primary investment is in Adjustable Rate Mortgages ... it means increased earnings flows in the months to come as interests rates reset higher, I would venture that it's much more risky than the increase in interest is worth... [T]here's also the risk that they're going to be stuck with a lot more foreclosures on those mortgages. "
And yet, for all its intimate association with the market for ARMs, Capstead has managed to avoid the bombshells striking every other company in this industry. Over the past year, its stock has nearly doubled in price.
Can it continue to outperform? Search me. If there's one thing I know about the mortgage industry, it's that I don't know anything -- and I'm better off clamming up than steering you wrong. But that doesn't mean you need to play the wallflower. If you know a reason Capstead can continue to defy the critics, speak up!
