"The bigger they are, the harder they fall." It's the worst nightmare of every investor -- buying a hot stock just before it takes a nosedive.
Every day, WSJ.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 125,000 (and counting) stock gurus in CAPS have to say about the list's latest contenders:
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One Year Ago
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Recent Price
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CAPS Rating
(5 max):
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NDS Group (Nasdaq: NNDS )
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$52.44
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$61.93
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*****
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Sunoco Logistics Partners (NYSE: SXL )
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$52.00
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$53.88
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*****
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InterDigital (Nasdaq: IDCC )
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$20.06
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$32.33
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****
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Geron Corp. (Nasdaq: GERN )
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$5.28
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$7.84
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**
|
Companies are selected from the "New Highs & Lows" lists published on WSJ.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.
Alas and alack
It doesn't take more than a glance at today's list to see that investors entertain generally bullish thoughts on almost every stock there, except for one. But we told you all about Geron -- why it's hitting its highs, and why it might not maintain them -- last week, and I have no desire to belabor the point.
But that does leave us with a conundrum.
With optimism so prevalent here, I'm hesitant to suggest that any of the other stocks on today's list are "ready to fall." Indeed, if you comb through the CAPS pitches on these highfliers, you'll see that only one Fool has yet gone on record panning Sunoco Logistics, while a grand total of zero Fools has anything mean to say about NDS Group. Turns out, the only stock on today's list (other than Geron, that is) engendering significant criticism in Fooldom is ... Motley Fool Stock Advisor recommendation InterDigital.
Well, heck. That almost sounds like a challenge -- and I'm not inclined to duck it. Herewith, a summary of the knocks against InterDigital:
The bear case against InterDigital
- In April, CAPS member trafficjam panned the stock for being: "up/down all the time." (In fact, though, the stock has a pretty low beta of just 0.74.)
- More significant than the direction of the stock price, though, is the trajectory of the business. In September, capinator critiqued InterDigital on this score, complaining of: "too much uncertainty with respect to future revenues. Legal battles over the company's patents will take a toll on profits. A weak economy will negatively affect royalty income. The stock is trading at a high PE multiple with uncertain growth prospects."
- And indeed, this is a common theme in criticisms of InterDigital. Way back in 2006, BostonGekko argued much the same point, warning that: "Investors ... think [InterDigital] will sign several handset makers to 3G WCDMA license deals, with large dollar values, in the short-term. I think they will sign a FEW deals, with LOWER dollar values, over a LONGER time horizon."
So far, though, the bear case seems to be in hibernation. Since BostonGekko first threw down the gauntlet two years ago, InterDigital has signed licensing deals with Research In Motion (Nasdaq: RIMM ) and Apple (Nasdaq: AAPL ) , won a quarter-billion-dollar settlement against Nokia (NYSE: NOK ) , and settled its dispute with Samsung, signing that one up as well.
Which is my way of saying, not that the ursine argument on this one is wrong, necessarily, but that it's been wrong so far. It's entirely likely that a single high-profile litigation loss could knock InterDigital off of its high-flying pedestal. Fortunately for bulls, InterDigital doesn't seem to make a habit of losing.
Time to chime in
But hey, feel free to disagree. If you think there's more to the bear thesis on InterDigital, then here's your chance to make your mark. Growl away.
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