"The bigger they are, the harder they fall." It's the worst nightmare of every investor in today's market -- buying a hot stock just before it takes a nosedive.
Every day, MSN Money publishes a list of stocks whose shares have just hit new 52-week highs. And every day, investors read the list and tremble -- some with greed, others with terror. On our Motley Fool CAPS investing community, these top stocks usually enjoy favorable ratings, since everyone loves a winner. But what should you do when some of CAPS' smartest investors pan one of these hot stocks?
For starters, consider using the "52 week high" list as a starting point for further research. Stocks can rise for many reasons, but a little help from Motley Fool CAPS can make it easier to figure out how worthy those reasons are. Let's see what the more than 85,000 stock gurus (and counting) in CAPS have to say about the list's latest contenders:
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One Year Ago
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Currently Fetching
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CAPS Rating
(5 max):
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Panhandle Oil and Gas (AMEX:PHX)
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$19.00
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$30.49
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*****
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Darling International (:DAR)
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$5.35
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$13.90
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*****
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Chart Industries (:GTLS)
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$16.50
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$34.31
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*****
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FTI Consulting (NYSE:FCN)
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$32.70
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$63.50
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****
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Rubicon Technology (NASDAQ:RBCN)
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*
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$29.41
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**
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Five stars = highest possible CAPS rating; one star = lowest. Companies are selected from the "New 52-Week Highs" list published on MSN Money on the Saturday following close of trading last week. One year ago and current pricing provided by Yahoo! Finance. Prices as of March 2. CAPS ratings from Motley Fool CAPS. *Rubicon Technology's was on Nov. 15, 2007 at $14 per share.
Everybody loves a winner
When stocks soar on the wings of success, bears become rare. Nearly every one of the stocks on today's list, in addition to hitting its 52-week high, rates highly in the estimation of CAPS investors. Every stock but one, that is: LED crystal maker Rubicon Technology. Seven out of 10 players polled expect Rubicon to outperform the market. But the better the player, the less sure they are of this. CAPS All-Stars, for example, are evenly split on the company's prospects. Why are they so intent on crossing Rubicon? We're about to find out, as we examine ...
The bear case against Rubicon Technology
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rationalexchange recently lumped Rubicon in along with all other "tech" firms, arguing that the whole sector is headed for a fall. "The stock market is about to realize where oil is going and fall; and most affected will be today's leading IT sectors."
- The sole CAPS All-Star to pen a pitch on the stock is likewise unimpressed. Last December, chk999 called Rubicon a "[c]ompany with a big market cap and very little information available. Any slowdown in the economy and this is probably going down a lot."
- Finally, 21popsontop asserted at the end January that the company faces "[to]o much computition and bad management to boot ... Income (minus-49 million) and only getting more ugly with Income growth (minus-121%) and Net Profit margin sinking at a minus-11% and will only get worse. Not looking pretty at Rubicon."
Hmm. I must say that 21popsontop's argument seems the best thought-out of these three negative pitches. At $270 million in market cap, Rubicon hardly looks "big" to me. And as for oil hurting tech ... Rubicon's stock in trade is growing the crystals that firms like Cree (Nasdaq: CREE ) and Siemens (NYSE: SI ) use to manufacture light-emitting diodes. LEDs are a high-efficiency lighting technology that aims to help mitigate the effects of high-priced oil. So I find it hard to believe that high oil prices would do anything but help Rubicon.
No, the objection with the most merit here is that Rubicon's numbers are "ugly." The company is unprofitable under GAAP, and burning cash. On the other hand, Rubicon has $75 million in cash, equivalents, and short-term investments. Assuming cash burn doesn't get very much worse, very quickly, that should suffice to keep Rubicon in business for a while. What's more, the company's gross margins are improving by the quarter, and I wouldn't be at all surprised to find Rubicon earning a profit before too much longer.
Time to chime in
Of course, that still leaves open the question of whether Rubicon's price is too high, too low, or just right. What do you think?
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