Rocket Stock or Dud?

"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. Below I list a few stocks that may have done just that. Stocks that, according to the smart folks at finviz.com, 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)
BE Aerospace (Nasdaq: BEAV  )	$17.77	*****
Western Digital  (NYSE: WDC  )	$32.85	****
Sterlite Industries  (NYSE: SLT  )	$13.13	****
Ctrip (Nasdaq: CTRP  )	$51.43	****
Alpha Natural Resources (NYSE: ANR  )	$36.08	****

Companies are selected by screening for 100% and higher price appreciation year-to-date on finviz.com. Five stars = highest possible CAPS rating; one star = lowest. Current pricing provided by Yahoo! Finance. CAPS ratings from Motley Fool CAPS.

Each of these stocks has enjoyed remarkable gains this year, and if you ask the 135,000 investors (and counting) who occupy the judges' stands on Motley Fool CAPS, this is only the beginning. Judging from their above average four- and five-star ratings, these stocks are all destined for greatness.

But there's one stock Fools love above all the rest. Let's find out about this week's lone five-star investing opportunity, as we review ...

The bull case for BE Aerospace
CAPS All-Star docmayo picked BEA to outperform late last year, citing the company's "growing earnings and backlog of work," concluding that it's "undervalued." In fact, late last year was a very popular time for Fools to pile into BEA. Boeing (NYSE: BA  ) was in the middle of a months-long labor dispute, and investors worried about the consequences for suppliers such as General Electric (NYSE: GE  ) , Spirit, and ... BE Aerospace. 

But taking a step back from Boeing, fellow All-Star investor mulledover argued that: "Boeing on strike has almost no effect on BEAV revenue. Revenue is international and likely will grow at 20% / year. At $12 with likely earnings of $2/share, I would suggest that this is a remarkable deal." And it was. Since recommending the stock last October, mulledover has outperformed the S&P 500 by more than 50 points on this pick.

So kudos for mulledover. But now that Boeing's gotten its strike problem squared away, other difficulties loom. dockofthebay reasoned way back last summer that: "Airlines are cancelling or pushing back delivery's of aircraft, but the Boeing 787 Dreamliner is not just a pipedream..."

To which I'd reply: No, it's a nightmare from which Boeing can't seem to awaken. Two years of delays, canceled orders, and shareholder indignation are all bad news for BE Aerospace. Tumbling jetliner orders at Airbus and Boeing helped send BEA revenue down 30% in the most recent quarter, with profits dropping 36%. And while management hopes that 2009 will be a "trough" year for the business, the floor's looking awfully wide down here in the valley. Management tells us that it expects earnings to be flat in 2010 as well.

Granted, business will eventually improve. Wall Street expects to see BEA return to a 15% long-term growth rate some time after next year. My concern, however, is that the share price today already prices in that growth and more.

Unprofitable under GAAP, and selling for nearly 30 times annual free cash flow, I simply do not see how a 15% growth rate can support today's stock price. And with BEA already struggling under a sizeable debt load, I shudder to think what will happen to BEA's stock if Ben Bernanke's promised recovery fails to arrive on cue.

Time to chime in
Of course, that's just my opinion. And I admit that it's a pessmistic stance. Glass-half-full Fools could just as easily argue that BE Aerospace is undervalued based on its attractive enterprise value-to-EBITDA ratio of less than seven, or its 1.3 price-to-book value ratio -- roughly equal to GE's P/B, but way, way lower than Boeing's.

And heck, maybe they're right. My hunch tells me BEA's a dud, but I'm not unpersuadable. So if you think there's a chance BE Aerospace will continue to rocket upward, here's your chance to make your case. Click on over to Motley Fool CAPS and tell us why.