Get Ready for the Fall

"The bigger they are, the harder they fall." This old saying sums up the worst nightmare of every homeowner, every gold buyer, and every investor in today's market. Dare ye buy at the top?

Every day, Nasdaq.com publishes a list of the market's top stocks -- the companies whose shares have just hit their highest intraday price of any time in the past 52 weeks. Every day, investors read this list and tremble -- some with greed (big mo', baby!), and others in pure, unmitigated, acrophobic terror (whatever you do, don't look down).

Over at Motley Fool CAPS, thousands of investors just like you are watching these same companies and voting their gut on whether they'll keep rising or stumble and fall. Usually, the ratings wax optimistic as stocks hit new highs -- because everyone loves a winner. But what do you make of it when some of the smartest investors out there are panning a hot stock?

You could heed them. You could ignore them. You could take the stock tickers and construct anagrams from 'em. For my money, though, the best course of action is to use the "52 Week High" list as just a starting point for further research. After all, stocks can go up for many reasons, and it's up to you to decide how worthy those reasons are. But thanks to Motley Fool CAPS, you don't have to make the decision alone.

With that said, let's meet today's list of contenders, drawn from the latest "52 Week High" list at Nasdaq.com. What does our panel of more than 78,000 stock gurus (and counting) have to say about them?

Everybody loves a winner
When stocks soar on the wings of success, bears become rare -- so it comes as no surprise that nearly every stock on today's list enjoys average ratings or better. One stock is the exception that proves the rule. That's the stock we'll focus on today, as we examine ...

The bear case against Churchill Downs
Actually, this is going to be really quick -- because out of the five CAPS players who've "pitched" us on Churchill Downs, only one argues that the biggest name in horse racing (and a pretty big name in off-track betting) will underperform the S&P 500. That Fool, bbcz, asks rhetorically: "Do you know anyone who bets on the horses anymore? ... Horsey revenue isn't growing." But even he isn't entirely convinced this stock is a bad bet, musing:

I wonder if this is a longterm asset play though. They sold Hollywood park for 250M while only decreasing book asset value by 150M. Also, it could be a turnaround play if those slot machines ever get installed like they hope.

So I guess it falls to me to make the bear case here today. Very well. Basically, it comes down to one word: valuation. Churchill Downs sells for more than 32 times forward (2008) earnings, while analysts predict it will grow at just 8% per year over the next five years. That's a higher P/E than more-established gaming concerns like Harrah's (NYSE:HET) and Penn National (NASDAQ:PENN) command -- for a company predicted to grow at less than half the speed of those two worthies. Seems to me, it should be the other way around -- that the slower-growth Churchill Downs should sell for less than its higher-growth rivals. If and when Mr. Market agrees, Churchill Downs' shares could be headed for a fall.

Time to chime in
Of course, the aim of this column isn't just to tell you what I think about Churchill Downs -- or even what other CAPS players are saying. We want to hear your thoughts on the company. If you've got an opinion, we've got a place to voice it.

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