Get Ready for the Fall

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"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. In our Motley Fool CAPS investing community, these top stocks usually enjoy favorable ratings, because 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 110,000 stock gurus (and counting) in CAPS have to say about the list's latest contenders:

Company	One Year Ago Today	Recent Price	CAPS Rating (5 maximum):
AeroVironment (Nasdaq: AVAV)	$21.24	$28.32	*****
BJ's Wholesale (NYSE: BJ)	$36.99	$42.60	***
Iomai  (Nasdaq: IOMI)	$1.76	$6.50	***
Digimarc  (Nasdaq: DMRC)	$10.45	$14.26	***
Solera Holdings (NYSE: SLH)	$19.97	$29.06	***

Five stars = highest possible CAPS rating; one star = lowest. Companies are selected from the "New 52-Week Highs" list published on MSN Money on the Saturday following close of trading last week. One-year-ago and recent prices 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 -- or at least, that's the way it usually works. This week, however, shows us the rare exception to that rule. While none of our five stocks hitting 52-week highs elicits out-and-out negative sentiment on CAPS, only one of the five (AeroVironment) gets an actual endorsement. Everybody else receives the CAPS equivalent of a kiss from your cousin: Three stars. Ho hum.

Which of these four is not like the others?

The aim of this column, of course, is to pick out of the field of rising stars a stock or two destined to fall back to earth. Care to hazard a guess which one we'll pick on this week? I'll give you a few clues:

We've already profiled the bear case against BJ's.

Digimarc is about to reap a $310 million payday when it sells its ID Systems business to L-1 Identity Solutions (NYSE: ID). That should give its price a bit of support.

Almost as much support as Iomai gets from getting bought out in its entirety by Intercell.

So, Solera?
Right. That leaves insurance claims processing software maker Solera Holdings. Let's see if we can build a bear case against this one.

The bear case against Solera Holdings
Our CAPS players aren't giving us a lot of help on Solera, unfortunately. While half the pitches for this one are of a bearish bent, "half" in this case equals two:

• CAPS All-Star introscop thinks: "Debt looks a bit too high."
• scottidog doesn't like how the company compares with the average metrics on the S&P 500: "Price/Sales = 3.6x v 1.5x ... Profit Margin = -17.1% v 7.8%" and so on.

Indeed, Solera does have a pretty hefty debt load -- more than $500 million in net debt. It's not profitable, yet its P/S ratio is twice as high as the average S&P company, twice as high as the average business software company, and much higher than that of (profitable) rival Fair Isaac (NYSE: FIC).

To be fair, Solera does generate profit where it counts: On the cash flow statement. There we find enough free cash flow to give the stock a positive price-to-free cash flow ratio of 28. Still, that seems a bit much to pay for a predicted 15% grower with a debt-heavy balance sheet.

In the end, I'm going to have to side with the bears on this one. Although Solera is far from the worst business I've ever reviewed in this column, it is priced a bit on the high side. Whether Solera's hit its zenith, or still has a while longer to climb, I see a sunset in its future.

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