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 do Chinese Internet searches have to do with American cancer research? What do either of these things have in common with producing agricultural and construction machinery? The answer to both questions is: The companies behind these products are some of the hottest stocks on the Street.

With stock price gains that range from 120% to 150% over the past 12 months, each of these stocks has easily doubled over the past year's time -- but how much longer can the good times roll?

Quite a while longer, according to our CAPS members. Bigmoney83 tells us Keryx is working on a new cancer drug, Zerenex, in "phase 3" trials "that looks very promising." Plus, Keryx has "all their own meeds in the pipeline" to profit from after that one. There's no actual revenues being made here yet, of course, but with $32 million in the bank, the company should be able continue to operate for nearly three more years at the current cash-burn rate.

Baidu … you know all about Baidu, right? Stocker527 thinks the "King of search in China" is a "great growth opportunity has more people in China start to use the Internet."

And yet, the stock Fools seem to favor most is neither of these hi-tech wunderkinder, but lowly powered equipment maker CNH Global. Why is that?

The bull case for CNH Global
It all begins with corn. Or so says CAPS member browzer01: "with corn prices high, farmers are able to upgrade old equipment ..." And as quotean reminds us: "CNH Global N.V. engages in the manufacture and distribution of agricultural and construction equipment worldwide. The company operates in three segments: Agricultural Equipment, Construction Equipment, and Financial Services." ("Financial services" meaning the financing of purchases of its ag and construction equipment.) According to CAPS member satyahere, CNH is actually "No. 2 in agricultural and farming equipment," globally.

Of course, browzer01 wrote his note three years ago, and the other posters not long after -- but what goes around, comes around again. After hitting all-time highs in 2008, corn prices are on the upswing once more. The New York Times decried the price rise in a column last week. But as browzer points out, what's bad for consumers can be very good indeed for CNH -- and for those of us who invest in it.

Money doesn't grow on trees. It grows on cornstalks.
Even prior to the recent spike in prices, CNH was doing pretty well. Free cash flow for the last four reported quarters grew to a whopping $2.4 billion. Even with its heavy debt load, this leading ag equipment stock now carries an enterprise value of less than 10x annual free cash flow.

When you compare that to some of its rivals -- Caterpillar (NYSE: CAT) sports an enterprise value 26x FCF for example, or Deere (NYSE: DE) at an EV/FCF ratio of 38 -- it's pretty easy to see why investors are optimistic about this relative-value stock. The more so when you note that CNH's projected growth rate over the next five years is a market-whomping 14.5%.

Foolish takeaway
Ag industry bulls have many stocks to choose from as they rampage their way to profits in a market starved for corn. Potash (NYSE: POT) and Mosaic (NYSE: MOS) are probably the most obvious plays, based on their leading positions in the fertilizer market. But personally, I rarely find either of these stocks trading at a bargain price -- any more than we see Cat or Deere selling for attractive multiples now.

No, Fools, to me, the real bargain in this industry is precisely the one that our CAPS members have pointed us toward: CNH looks A-OK to me.

Disagree? Feel free. But if you do, please tell us why -- on Motley Fool CAPS.