Rocket Stock or Dud?

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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 rocket stock just before it takes a nosedive.

Now I readily admit that sometimes, stocks 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 upwards.

Problem is, if the price goes up too much, even a great company can turn into a lousy investment. You'll find a few stocks listed below that may have done just that. Stocks that, according to the smart folks at finviz.com, have experienced sharp rises in price over the past 30 days, and just might be ripe to fall back to earth.

Stock	Recent Price	CAPS Rating (out of 5)
RTI International Metals (NYSE: RTI)	$19.30	****
AK Steel Holding (NYSE: AKS)	$18.97	***
Genworth Financial  (NYSE: GNW)	$6.80	***
CarMax  (NYSE: KMX)	$15.31	***
Palm (Nasdaq: PALM)	$13.93	*

Companies are selected by screening for 30% and higher price appreciation over the past month on finviz.com. Five stars = highest possible CAPS rating; one star = lowest. Recent pricing provided by Yahoo! Finance as of June 19, 2009 close. CAPS ratings from Motley Fool CAPS.

Each of these stocks has enjoyed remarkable gains over the past month. But if you ask the 135,000 (and counting!) investors who make up Motley Fool CAPS, not all of these companies deserve their sudden gains.

Fools seem unconvinced that there's any room left to run on several of these stocks -- and none whatsoever on Palm. One company they remain bullish on, though, is titanium concern RTI International Metals. With the Paris Air Show in full swing, Airbus quickly filling out its order book, and Boeing (NYSE: BA) struggling to do the same, investors see great things in store for the company that supplies titanium parts to both these titans. But is their optimism well-grounded?

Let's find out, as we dig into ...

The bull case for RTI International Metals
CAPS All-Star mladenmarkov made a prescient call back in November: "price is too low and titanium will always be needed ... boeing and airbus may delay the production by a year, but they will inevitably need that titanium as they have long-term contracts."

herzele agreed later that year, predicting that "as the economy improves, airpanes will be (re ordered) a big part of which is titanium." And more generally, another All-Star investor -- CaptainFiveBaggr -- urged: "dont miss the boat on metals people. ... I am extremely Bullish on the mining/metals industry."

And what can I say? Sometimes, it pays to be optimistic. Each of the three Fools quoted above has thumped the market with their RTI recommendations. mladenmarkov in particular surpassed the S&P 500's returns by more than 70 percentage points in just over half a year. Nice.

But while there's no disputing that RTI has been a rocket stock over the past few months, the question remains: Is there any jet fuel left in the tank? Fellow Fool Chris Jones recently argued that there is -- but me, I'm not so sure. You see, while it's true that RTI sells for less than book value, and that such is the mark of many an undervalued stock, it's also true that RTI has several strikes against it. Namely:

• It's selling for 12 times earnings -- which would be fine if the stock were growing somewhere in the low double digits. But most Wall Street analysts actually expect RTI to post single-digit declines in profit over the next five years.
• Granted, the same can be said of RTI rivals like Allegheny Technologies and Titanium Metals (NYSE: TIE). However, both Allegheny and Titanium Metals have lower P/Es than RTI. More importantly, both of RTI's rivals are generating positive free cash flow to help them through the lean times. RTI is not.

Foolish takeaway
I love a good contrarian investing idea as much as the next guy. But the way I see it, there's a time to be contrarian -- and a time to cash in your profits and look reality in the face.

When I look at RTI, the reality staring back at me is that this stock has risen too high, too fast. If you feel you absolutely must invest in metals, and positively feel titanium is your metal of choice, then Fools, I urge you to consider Allegheny Tech or TiMet as better places for your money. The way I see it, these two stocks offer you a much bigger than does RTI -- where your chances of making a profit from today's price range from slim to none.

Time to chime in
Hey, but that's just my opinion -- and at The Motley Fool, opinions are never sacrosanct. By which I mean to say, if you've got a different idea about RTI, then we've got a place for you to respond. Click on over to Motley Fool CAPS right now and fire away.

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