Rocket Stock or Dud?

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It's the worst nightmare of every investor in today's market -- buying a rocket stock just before it takes a nosedive.

Now, I readily admit that stocks sometimes rise for a reason. But sometimes, the rise becomes the reason. No matter how often we caution them not to, investors do have a habit of buying "hot" stocks, and trusting momentum to keep 'em moving upward.

Problem is, if the price goes up too much, even a great company can turn into a lousy investment. Below, I list a few stocks that may have done just that. Stocks that have more than doubled since the beginning of this year, and just might be ripe to fall back to earth.

Stock	Recent Price	CAPS Rating (out of 5):
ON Semiconductor  (Nasdaq: ONNN)	$6.86	*****
Walter Energy (NYSE: WLT)	$36.19	****
Yingli Green Energy  (NYSE: YGE)	$13.76	****
Level 3 Communications  (Nasdaq: LVLT)	$1.54	****
Finisar Corp (Nasdaq: FNSR)	$0.80	****

Companies selected by screening for 100% and higher price appreciation yea to date on finviz.com.
Current pricing provided by Yahoo! Finance. CAPS ratings from Motley Fool CAPS.

Each of these stocks has enjoyed remarkable gains over the past five months. And if you ask the 135,000 (and counting) investors who make up Motley Fool CAPS, it's high time energy stocks (Yingli and Walter) and telecom equipment makers (Level 3 and Finisar) pulled out of their slump.

After all, big oil's next bull run is well under way, with ExxonMobil (NYSE: XOM) stock up double digits off its March lows. And I hear that Cisco (Nasdaq: CSCO) is on the hunt for acquisitions. (No telling who's going to get taken out of play at a premium in the next few months.) Clearly, there's plenty of reason why these stocks are so popular on Main Street.

But while Fools like each and every one of the stocks named above, the one that really turns 'em on is ...

ON Semiconductor

• CAPS All-Star akneefel calls ON: "A great speculative Semiconductor play." And with its thumb in practically every piece of the semi pie -- chips used in everything from regulating power supply, to auto ignitions, to consumer electronics, to medical devices -- the company's clearly got a chance to benefit from a resurgence in silicon demand.
• Speaking of which, sk8terman tells us "semi inventories [are] dwindling." (Which could spur demand when ON's customers must rebuild their depleted silicon stockpiles.)
• But even before the inventories had been sold down, another CAPS All-Star -- tycoonbull -- praised ON: "current return on capital is 17.8%, compared to its cost of capital of 11.6%." And argued: "The company should experience accelerating growth ... They are executing a strategy of expanding its power management products to a broader range of end markets, which should also lead to better profitability through higher blended average selling prices and increasing plant utilization."

Is tycoonbull talking truth? It sure looks like it -- since recommending the stock back in March of '08, tycoonbull has outperformed the market by an astonishing 46 percentage points on this pick. The real question, though, is whether such outperformance will continue.

Not so fast
I wish I could tell you I'm convinced it will ... but I'm not.

You see, right now, analysts are projecting something on the order of 11.4% annual profits growth at ON. A respectable pace? Sure. The problem, though, is that ON's share price already takes such growth -- and more -- for granted, offering investors essentially no on an investment made today.

Thanks to a fourth-quarter goodwill writedown taken last year, the stock has no trailing price-to-earnings ratio (P/E). The forward P/E of 17.6 is a little easier to wrap your head around, but hardly cheap. And even valued on a price-to-free cash flow basis, ON looks pricey at 15.6 times free cash flow.

In addition to a too-high price, this company carries a $528 million debt load, has minimal insider ownership, and pays no dividend. Quite frankly, folks, I just see no good reason to own it.

Foolish takeaway
To my Foolish eye, ON Semiconductor is a dud of a stock. But the aim of this column isn't just to tell you what I think. We'd much rather hear your opinion of the company. Click on over to Motley Fool CAPS and tell us what you think.

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