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.

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.

Alas, if the price goes up too much, even a great company can turn into a lousy investment. Below, I list a few companies that may have done just that. According to the smart folks at finviz.com, these stocks have more than doubled since the beginning of this year, and just might be ripe to fall back to earth.

Company	Recent Price	CAPS Rating (out of 5):
ATP Oil & Gas  (Nasdaq: ATPG)	$17.31	*****
Walter Energy (NYSE: WLT)	$58.50	****
Coeur d'Alene Mines  (NYSE: CDE)	$20.08	***
Oshkosh (NYSE: OSK)	$31.26	**
Palm (Nasdaq: PALM)	$11.61	*

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 already won big this year, but how many of them can keep on winning? Ask our 140,000 CAPS members, and the answers are all over the map, from "don't hold your breath" on Palm, to "can't say" at Coeur d' Alene, to our very tippety-top-ranked stock.

The bull case for ATP Oil & Gas 
CAPS member JMJeffrey introduces ATP to us:

Highly successful deep sea driller which has been in the tank for a while and is starting to show signs of life again. With the recent sale of their Gomez asset I believe that they now have the financial capability to continue and grow as new initiatives come on-line (primarily Telemark). Solid oil prices will help keep this one afloat and out perform the market from here.

CAPS All-Star Pogue1245 agrees: "NG stocks have huge growth potential. I think that there will be substantial movement in these stocks in the near term."

But that's not to say ATP has exactly been standing still. One month before Pogue1245's bullish prognosis, fellow All-Star investor xiaolifeidao pointed out:

… stock price follows P/book-value or P/E and it is PREDICTABLE. At the prices of $8 two months ago, the market value was almost the same as book value, which was too low. In less than 2 months, the stock prices jumps 100.

And over the course of the next month, ATP proceeded to outperform the market again -- by more than 88 percentage points.

One Fool's analysis
What are the chances of a third triple-digit outperformance by ATP? If we take xiaolifedao's suggestion to make P/B our touchstone, then the stock's not as obvious a buy as it was when it traded for close to book. (After the run-up, ATP now sells for more than twice its book value.)

But there are other ways to measure the stock's value. PEG analysis, for example, would suggest ATP is a bargain, because it sells for less than eight times earnings, and is expected to grow those earnings north of 15% per year over the next five years.

Or we could take the asset-value approach we used in valuing Anadarko Petroleum (NYSE: APC) a few weeks back. Like Anadarko, ATP splits its hydrocarbon assets pretty evenly between ...

• 65.3 million barrels of proven oil reserves, worth roughly $5 billion at today's spot.
• 321.7 billion cubic feet of natural gas, worth an additional $1.4 billion at the still-depressed $4.12 spot price per million British thermal units.

As a result, if you posit $5.6 billion for ATP's asset value, you're probably pretty close to the ballpark. Viewed in that light, and relative to its $2 billion enterprise value, ATP looks every bit as good as its PEG ratio suggests. To me, it seems about as attractive as Anadarko, and perhaps even a better deal than the 800-pound gorilla of the natural-gas industry, Chesapeake Energy (NYSE: CHK).

Foolish takeaway
Any way I look at it -- even through the P/B lens -- ATP comes out looking like some kind of a bargain. In a Peak Oil world, ATP Oil & Gas should be a good hedge.

But just because I think so doesn't mean you have to agree. Here at the Fool, we're open to all opinions on the stocks we discuss -- and we'd love to hear yours. Click on over to Motley Fools CAPS now, and tell us what you think.