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 (and if the company was less than great in the first place ...) Below I list a few stocks that may have done just this. Stocks that, according to the smart folks at finviz.com, have doubled (or nearly so) over the past year, and just might be ripe to fall back to earth.

Companies are selected by screening for 100% and higher intraday price appreciation over the last 12 months on finviz.com. Five stars = highest possible CAPS rating; one star = lowest. Current pricing provided by Yahoo! Finance. CAPS ratings from Motley Fool CAPS.

Question: What does genomic testing have in common with mezzanine investment? What do either of these things have in common with refining titanium? The answer to both questions is: The companies behind these products are some of the hottest stocks on the Street.

Measuring from intraday low to intraday high, each of gene researcher Sequenom and KKR Financial have doubled over the past 12 months. Based on their close-of-trading prices, they've come close -- and if you ask CAPS members, a lot of folks think they'll make "honest doubles" and more in pretty short order. CAPS member dessex predicts that "if tests due in late 2010/early 2011 are successful, this is a $20 stock prior to any sales." Once revenues start to roll, Burgermyster321 thinks prices in the "Mid 40's seem reasonable." 

Meanwhile, whatever the stock price does, kahunacfa thinks you can buy KKR Financial, a "REIT form holding corporation for KKR restructured debt used to finance leveraged KKR deals" based on its dividend alone, predicting the "dividend yield is expected to increase over the next several yerars as the dividend is increased from time-to-time."

Unfortunately, this optimism is far from universal. In fact, judging from the stocks' mediocre three-star ratings on CAPS, most investors are still straddling a picket fence on whether to buy either Sequenom or KKR. In contrast, more and more investors are willing to hop right over the titanium fence into "buy territory" for Titanium Metals. Let's find out why, as we examine...

The bull case for Titanium Metals
CAPS member wakefier is in love with titanium, calling it an "essential metal in a niche market," and giving the thumbs-up to the biggest company in the world that produces it. For context, edkevins adds that "TIE provides titanium for the aircarft industry which is in a building stage for the next 6-7 years. Patience will be rewarded here."

And perhaps patience already has been rewarded. After all, the stock's already up more than 100% over the past year. And westontg tells us that: "Once Boeing (NYSE: BA) starts pumping out production on the new 787, considering it's filled with titanium parts, this stock should perform well."

Granted, Boeing has had its troubles bringing the 787 to market ... and the 747-8 ... and for that matter, the KC-X transport as well (for reasons of its own.) But in contrast to its flubs, Boeing's had nothing but success to report on sales efforts with its 737 Next Generation airplane -- another big titanium consumer. The company has already upped production rates on the plane three times so far this year, and rumor has it that additional increases are in the works. Seems to me, there's plenty of demand for the metal.

But what about the stock?

TiMet: Best of the worst?
Fact is, the Boeing 787 story is so well-known by this point that true bargains in the titanium industry are really hard to come by. TiMet certainly isn't one, not at 88 times earnings. Allegheny Tech (NYSE: ATI) is only a little cheaper at 52 times earnings. RTI International (NYSE: RTI) doesn't even have a P/E, it's so expensive.

That said, if you feel you absolutely, positively must own a piece of the titanium industry, I do agree that TiMet is probably your best bet. Of the three big names in titanium, it's the only one currently generating positive free cash flow. (Even Russia's VSMPO-AVISMA is burning cash.) In this market, I'm afraid TiMet is the closest thing you'll find to an actual "value" in titanium stocks. But personally, I wouldn't touch the stock. Not at this price.

Would you? Tell us why on Motley Fool CAPS.