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 hot stock just before it takes a nosedive.

Every day, MSN Money 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 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 can rise for many reasons, but a little help from Motley Fool CAPS can make it easier to figure out how worthy those reasons are. Let's see what the more than 85,000 stock gurus (and counting) in CAPS have to say about the list's latest contenders:

Companies are selected from the "New 52 Week High" list published on MSN Money on the Saturday following close of trading last week. Year-ago and current pricing provided by Yahoo! Finance, as of the same date. CAPS ratings from Motley Fool CAPS.

Smells like dog
When stocks soar on the wings of success, bears become rare. With every stock on today's list hitting its 52-week high, CAPS investors aren't betting on any of them falling anytime soon.

Now, the purpose of this column is to help you identify overblown growth stories -- rising stocks that the "wisdom of crowds" believes will shortly go right back down. Unfortunately (?), we don't have any of those today.

But what's the "next best thing" to watching as the CAPS community pins the tail on a dog of a stock? Well, we can at least begin looking for fleas. Of the five companies named above, Konami gets the lowest rating, so we'll give the cynics a crack at the video game publisher this week.

The bear case against Konami Corporation
CAPS player batbert worried early this month: "Metal Gear Solid 4 sales will disappoint because of the low installed user base. Pro Evolution Soccer 2009 will be less demanded due to the horrible predecessor."

Meanwhile, LeBoomer wrote last summer that Konami has: "[v]ery few titles tied to the Wii, and too many tied to the PS3. Great titles, poor choice of platforms."

And asianbanker simply chanted, "Dance dance to the 52-Week Low."

Despite having the least substantive pitch of the three, asianbanker came closest to getting things right. You see, that pitch was entered at the end of 2006, and over the following spring and summer, Konami shares did indeed proceed to plunge. Fortunately for investors (but unfortunately for asianbanker, who neglected to close out his CAPS pan on the stock), the plunge halted in late June 2007, and Konami has since recovered all its losses and more -- trading today not just at its 52-week high, but at its all-time high.

Time to chime in
Of course, thanks to this run-up, Konami is now priced at 30 times what it's expected to earn next fiscal year, ending March 2009. It's more expensive than the market at large, and pricier than industry leaders Activision (NASDAQ:ATVI) and Electronic Arts (NASDAQ:ERTS). CAPS investors don't seem worried by this fact, but that doesn't mean you have to keep quiet.

Does Konami have more room to run, or is it ready to fall? Tell us what you think.