Get Ready for the Fall

"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, Nasdaq.com 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 105,000 stock gurus (and counting) in CAPS have to say about the list's latest contenders:

	One Year Ago Today	Recent Price	CAPS Rating (5 max):
EXCO Resources  (NYSE: XCO)	$17.97	$29.83	*****
Ultra Petroleum (NYSE: UPL)	$57.82	$98.55	*****
Hornbeck Offshore Services  (NYSE: HOS)	$39.59	$54.65	*****
SandRidge Energy (NYSE: SD)	^	$59.81	*****
C&D Technologies  (NYSE: CHP)	$5.60	$8.04	**

^SandRidge Energy began trading on Nov. 6, 2007.
Five stars = highest possible CAPS rating; one star = lowest. Companies are selected from the "NASDAQ 52 Week High" list published on Nasdaq.com on the Saturday following close of trading last week. One year ago and recent prices provided by Yahoo! Finance. CAPS ratings from Motley Fool CAPS.

Everybody loves a winner
When stocks soar on the wings of success, bears become rare. And there's no doubt about it -- many of the most successful investments in recent years have involved companies whose names read "Resources," "Petroleum," and "Energy." Foolish investors remain rightly enthused over their prospects by and large, but one stock on today's list is not enjoying quite as much enthusiasm as the others, despite its exposure to the energy market.

Perhaps this is because C&D Technologies doesn't so much generate and sell energy, as store it. As we enter hurricane season, and power lines get ready to go down across the nation, there's an increased need for C&D's backup power solutions. So it's easy to understand why many investors think C&D is poised to profit, and are bidding the shares up in anticipation. (Along with shares of rivals like EnerSys (NYSE: ENS) and Exide (Nasdaq: XIDE).) But why do so many other investors think C&D's a loser, and believe this strongly enough to keep the stock down at just two stars on CAPS?

Build a bear, anyone?
This is a bit of a mystery. Over on CAPS, 18 players have rated C&D as an underperform, but only two have penned "pitches" explaining their thinking. One player describes a short-term strategy of "shorting" certain types of small-cap stocks. The other states that C&D is overvalued, and leaves it at that.

In short, if we want to know why C&D is a sell, we'll have to do the legwork ourselves. Fortunately, you don't need to walk very far to discover the problems with this stock. Just trot on over to the SEC archives, pull up the last several 10-K filings, and jot down the cash flows from each. What you'll find is that in each of the last five years, cash generated by operations at this business has dropped in comparison to the year before.

Fiscal year ending	Cash flow from operations
Jan. 31, 2003	$54.6 million
Jan. 31, 2004	$41.0 million
Jan. 31, 2005	$30.2 million
Jan. 31, 2006	$13.5 million
Jan. 31, 2007	($17.2 million)
Jan. 31, 2008	($54.1 million)

Source: Capital IQ, a division of Standard & Poor's.

Wow.

Sure, C&D generated positive cash flow in its most recent Q1 report, but one quarter's news does not a trend make. And the company still "burned cash" in the quarter, as capital expenditures more than outweighed cash from operations.

Time to chime in
Mind you, I'm not saying C&D hasn't turned the corner here. Maybe it has. Maybe it hasn't. What I am saying is that despite the lack of substantive criticism on CAPS to date, there's valid reason for skepticism here. But feel free to rebut it.