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, 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 more than 125,000 stock gurus (and counting) in CAPS have to say about the list's latest contenders:

	One Year Ago	Recent Price	CAPS Rating (out of 5):
Matrixx Initiatives  (Nasdaq: MTXX  )	$12.93	$18.91	*****
AeroVironment	$23.10	$40.03	***
Lancaster Colony	$36.70	$41.54	**
Palm (Nasdaq: PALM  )	$6.69	$8.70	*

Companies are selected from the "New Highs & Lows" lists published on WSJ.com on the Saturday following close of trading last week. Year-ago and current pricing provided by Yahoo! Finance. CAPS ratings from Motley Fool CAPS.

"Everybody loves a winner"
Well, maybe not everybody. Fact is, love looks to be in exceedingly short supply for this week's "winners." Cold-fighting pharmacist Matrixx Initiatives is certainly feeling it -- but everyone else on the list is out in the cold, and the least-liked of all is that darling of the tech boom from way back when: Palm.

Without further ado: Here is the church. Here is the steeple. Open the doors, and see ...

The bear case against Palm

• chopchop0 keeps the bear thesis nice and simple: "They can't compete against Apple (Nasdaq: AAPL  ) , [Research In Motion (Nasdaq: RIMM  ) ], etc." (How d'ya like them apples, Motorola (NYSE: MOT  ) and Nokia (NYSE: NOK  ) ? This chopchop0 just called y'all "etc.")
• What's more, GMarliave thinks that even if Palm could compete, it still might not be worth owning: "The stock price has shot up on the price of the Pre, and it just isn't reasonable. The company has lost money in the last year, has a negative book value, and is releasing their last gasp product into a bleak economy. Couple that with potential legal battles with Apple and the price looks pretty ridiculous."
• But the very best backhand thrown at Palm lately came from CAPS novice bachroxx, who argues: "I would sell Palm. After looking at the WebOS stuff, it really does look compelling, but right now the question is 'how are they going to cash in on it?'. From what I read, they have an exclusive deal with Sprint [ (NYSE: S  ) ] ... for the new phone. The phone won't be out for some time so they are going to be burning through cash. ...The geek in me wants Palm to win, but the conservative investor in me just couldn't bear the risk." This member continues, so be sure to check out the whole pitch.

For a total newcomer to CAPS, I have to say that's some pretty smart analysis there, bachroxx. Keep up the good work! And as for our other posters, they look right on the money as well. What we have here in Palm, folks, is a company working on its third straight year of declining sales as we head into a recession. This company lost money in six of the past 10 years, and last year alone, it lost enough money to destroy all the earnings created in the four years when it did earn a profit.

To top it all off, Palm burned $60 million in cash over the past year; as bachroxx points out, it looks set to burn even more before the Pre ever comes out. Finally, far from having a balance sheet ready to absorb the losses, Palm's sitting on $170 million in net debt. Put it all together, and you ask me if Palm's set to fall?

I would say yes.

Time to chime in
Of course, if you think Palm can cling to life for a few more quarters, I'm all ears. Tell me why.