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 rocket 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. In our Motley Fool CAPS investing community, these stocks usually enjoy favorable ratings, because everyone loves a winner.

But not always ...

	52-Week Low	Recent Price	CAPS Rating (out of 5):
Marvel Entertainment (NYSE: MVL)	$22.82	$39.35	****
Oshkosh  (NYSE: OSK)	$3.85	$25.24	****
Cott  (NYSE: COT)	$0.59	$7.01	*
Travelzoo  (Nasdaq: TZOO)	$3.72	$12.95	*
BioCryst Pharmaceuticals  (Nasdaq: BCRX)	$0.85	$5.95	*

Companies are selected from the "New Highs & Lows" lists published on WSJ.com on Thursday and Friday last week. 52-week low and recent price provided by Yahoo! Finance. CAPS ratings from Motley Fool CAPS.

Knives and knaves
Fools are downright acrophobic over the prices to which many of these stocks have climbed. Goldman Sachs just reported its best quarter ever ... but with a P/E now sitting north of 35, is it any wonder CAPS members give Goldman only two stars?

In contrast, one of the best-rated stocks on our list today has a much more reasonable P/E, and is in fact even cheaper than it looks. Ready to learn more about it?

Great. Then let's dive right in to ...

The bull case for Marvel Entertainment

• RCollier22 argues: "While Marvel may not have much else coming out the rest of this year, they have a massive backlog of storylines to sell and market and are just in the beginnings of doing so. For stock owners looking to the long term, this seems like an easy pick."
• What's more, new films are due out over the next few years. CAPS All-Star GKuhfeldt points out that "Marvel has some great movies in their pipeline. Iron Man 2 and Captain America to name a few." (Note that Iron Man 2 is due out next summer, and Captain America in 2011.)
• Longer-term, bajaisaak suggests that in considering an investment in Marvel, you: "Rewind a generation or two and ask yourself what Walt Disney (NYSE: DIS) looked like. A company that owned license agreements on a bunch of drawings and a leader that had the vision to monetize that asset with movies, toys, and themeparks. I believe this is the second chance to get in early on the next Disney. They have a huge inventory of characters, the model to monetize this is already in place (thanks Disney), and as technology evolves over the next decades you can bet Marvel will be at the forefront. That makes this a no-brainer. Ignore the noise about the next movie being a blockbuster or a flop, ignore the next earnings release, and think about where this company will be in 25 years. BUY!!!"

While I've no doubt our CAPS contributors are right in the long run (and in fact, I've bought shares of the company myself), investors considering the company today are perhaps more interested in buying at a great price, right? So let's consider the numbers.

Right now, Marvel sells for a 15 P/E. As already mentioned, that's a whole lot cheaper than Goldman Sachs' P/E of 35 -- which may explain why investors prefer Spider-Man over Goldman. Relative to film industry peers like Time Warner (NYSE: TWX) and Disney, however, Marvel's status as a bargain looks less certain. A dearth of movies in the ultra-short term has led to analysts predicting lower earnings for Marvel this year, and a higher forward P/E than either of its two largest rivals.

Still, P/Es don't tell the whole tale. If we examine Marvel's cash profits as opposed to what it reports as its "earnings," we find that the company generated $333 million in free cash flow over the past 12 months. That's significantly more than its reported net income, and enough to push this company's price-to-free cash flow ratio down to the bargain-basement valuation of 9.2.

Time to chime in
To me, that's an exceptionally good price to pay for a projected 12% grower like Marvel, and it's why I not only do not expect the stock to "fall" -- but in fact believe it will continue hitting new highs. But that's just me.

You see, the aim of this column isn't just to tell you what I think about Marvel Entertainment -- or even what our CAPS members think. What we really want to know is whether you believe Marvel will keep soaring with the superheroes -- or, like any villain, plunge to its doom?

In the CAPS universe, you get to judge. Cast your votes here.

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