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, 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, 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 100,000 stock gurus (and counting) in CAPS have to say about the list's latest contenders:

Stock	One Year Ago	Recently Fetching	CAPS Rating (5 Max):
Praxair  (NYSE: PX)	$66.20	$95.46	*****
Snap-on  (NYSE: SNA)	$55.29	$59.80	*****
Health Care REIT  (NYSE: HCN)	$45.45	$50.19	*****
Comstock Resources  (NYSE: CRK)	$28.65	$46.07	****
BJ's Wholesale Club (NYSE: BJ)	$35.08	$39.18	**

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 recent pricing from Yahoo! Finance, as of the same date. CAPS ratings from Motley Fool CAPS.

Everybody loves a winner
When stocks soar on the wings of success, bears become rare. Nearly every one of the stocks on today's list, in addition to hitting its 52-week high, rates highly in the estimation of CAPS investors. Every stock but one: BJ's Wholesale.

The company's CAPS page feels almost as empty as the aisles of its big-box stores. Fewer than 100 souls have bothered to show up and shop the stock to their peers. That's quite a contrast to the pages of rival wholesaler Costco (Nasdaq: COST), crammed to the rafters with 1,900 ratings, and Wal-Mart (NYSE: WMT), which owns Sam's Club and boasts twice as many ratings as does its Washington state-based rival. But we do have a few bears grumbling around the aisles. Let's listen in on what they have to say:

The bear case against BJ's Wholesale Club

• OldWeller sounds the most familiar refrain in retail lately: "Consumers are beat up."
• MARBAY agrees that BJ's is a "long term loser," but for demographic rather than economic reasons. With "more and more people not getting married and not having children," MARBAY asked back in June, "where will wholesale clubs be in the future?"
• So, we have an economic argument and a demographic argument ... how about a mathematical argument? PopsDaniecki grumped early last year: "I don't think the valuation of this company can be justified to me in any REAL value way. And a [price-to-earnings ratio] of 20 in this industry seems WAY too high."

I'm not enamored with any of the arguments laid out above. Here's why:

Consumers may be "beat up," but they still have to eat and wear clothes. (At least in public.) BJ's serves both of those needs and more, and its below-retail prices actually argue in the stores' favor in tough economic times. Furthermore, BJ's apparent target demographic of immigrant families with lots of children in tow disproves MARBAY's key argument. Finally, PopsDanieki -- with whom I often agree -- might have been on target last year, but not now. BJ's P/E of 20, same as last year, is only slightly higher than what Wal-Mart sports, and it offers a considerable discount to Costco's P/E of 27.

What's more, if you look past the GAAP numbers to BJ's cash-flow statement, you'll see that the company generates free cash flow far in excess of reported earnings -- this year. It didn't last year, when Pops wrote that pitch. As for valuation, the stock looks reasonably priced, at less than 11 times trailing free cash flow, versus growth estimates of nearly 10%. And remember that this is coming from a BJ's observer who's been extremely critical of the company's management and quality in the past.

As a consumer, I have nothing good to say about my local BJ's store -- but fair's fair, and the stock is fairly priced. My conclusion: BJ's is no Costco, but it's not necessarily heading for a fall, either.

Time to chime in
Of course, the aim of this column isn't just to tell you what I think about BJ's Wholesale Club -- or even what other CAPS players are saying. We really want to hear your thoughts. Head on over to Motley Fool CAPS, and tell us what you think.

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