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. 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)
Ingersoll-Rand (NYSE: IR)	$35.24	*****
Dendreon	$27.24	**
Trina Solar (NYSE: TSL)	$43.28	**
Sprint-Nextel (NYSE: S)	$3.75	**
NetApp (Nasdaq: NTAP)	$30.83	**

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. Recent price and 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? Our 145,000 CAPS members don't seem too optimistic about most of these companies continuing this year's winning streak into the New Year. There is one stock, however, that we believe can keep on powering higher: Ingersoll-Rand.

Blast-off ... or flame-out?
A student of history, CAPS member Bojacked recently opined that just as: "rebuilding the infrastructure" helped pull America out of the Great Depression," so too will "Obama's plan to rebuild America" put an end to the Great Recession. Which brings us to Ingersoll, which: "manufactures things like equipment to build roads and major industrial machinery."

VUCommodore reaches a similar conclusion, following Warren Buffett's lead to get there: "This Berkshire (NYSE: BRK-A) holding boasts a substantial dividend yield, and has the necessary financial strength to weather a short to medium term 'double dip' in the economy."

How will Ingersoll survive a recession that has tripped up so many other companies? CAPS All-Star edwjm cites the strength of diversity, arguing last summer that: "This is no one trick pony, but is diversified into several different industries." edwjm also likes the firm's "improved ... balance sheet," and believes that Ingersoll "should see good growth from its strong position in the climate control industry."

So just how "improved" is Ingersoll's balance sheet? And what will it be growing in the quarters and years to come? Well, let's take a look at the financials and find out.

With more than $740 million in cash, and $4.1 billion in debt, Ingersoll's balance sheet isn't exactly clean as a whistle, but it doesn't look too much more heavily leveraged than either Honeywell (NYSE: HON) or Johnson Controls (NYSE: JCI).

Profits-wise, however, Ingersoll is coming off a rough 2008 -- and to the extent we can rely on forward earnings estimates, its future doesn't look much brighter. Ingersoll's 15.7 forward P/E compares unfavorably to the lower valuations on its two larger rivals. Likewise, consensus estimates of 6% long-term growth at Ingersoll lag projections for both Honeywell and Johnson (in the latter case, by a considerable margin.)

Foolish takeaway
True, P/E ratios rarely tell the whole story about a stock. Even as it reports net losses under GAAP, Ingersoll has $1.6 billion in free cash flow to its credit over the last 12 months (and indeed, is GAAP-profitable through the first three quarters of this year.)

But this still leaves the firm trading for an enterprise value nearly 10 times as large as its free cash flow -- too pricey for its growth rate, to my Foolish eye. And with a miniscule dividend of just 0.8% -- again trailing its rivals -- I have to tell you: The more I look at Ingersoll, the less I like it. To me, this stock is no rocket. It's a dud, through and through.

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.