Rocket Stock or Dud?

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"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 upward.

Problem is, if the price goes up too much, even a great company can turn into a lousy investment. Below, I list five stocks that may have done just that. Stocks that, according to the smart folks at finviz.com, have more than doubled since the beginning of this year, and just might be ripe to fall back to earth.

Company	Recent Price	CAPS Rating (out of 5):
Sotheby's (NYSE: BID)	$17.42	*****
American Express (NYSE: AXP)	$37.21	***
International Paper  (NYSE: IP)	$23.96	***
Seagate Tech (NYSE: STX)	$15.31	***
Amazon.com (Nasdaq: AMZN)	$126.20	**

Companies are selected by screening for 100% and higher price appreciation year-to-date on finviz.com.
Current pricing provided by Yahoo! Finance. CAPS ratings from Motley Fool CAPS.

Each of these stocks has reaped huge rewards this year, but if you ask the 140,000 investors working odds on Motley Fool CAPS, most of 'em are just about played out.

Emphasis on "most of 'em." Today we'll look at the exception.

The bull case for Sotheby's 

• Windsurfing1 keeps the bull thesis short and sweet: "Will survive recession."

• I doubt anyone would argue with that. After all, as CAPS All-Star PIGMA notes, the biggest name in auctioneering has a "Big Dividend, Bigger Moat."

• And fellow All-Star LattePup argues that once "better days" return, "rich people will go back to conspicuous consumption. Arguably a cyclical so the time to buy is when the P/E appears to be high."

If that's true, then I guess there's no better time to buy Sotheby's than today, because after losing money in four of the last five quarters, Sotheby's P/E currently equals "infinity." Unlike such plebeian auctioneers as eBay (Nasdaq: EBAY) or Yahoo! (Nasdaq: YHOO), Sotheby's laughs at the quaint concept of earning a "profit." Rather, this company has racked up losses in excess of $88 million over the past 12 months, and from a free cash flow perspective, has burned through more than $120 million in cash over the same period.

And if none of that is bad enough to scare you off, consider, too, that this company -- described by CAPS member impro a year ago as "yielding 6.8%" and "with $5.58 per share of cash" -- has changed radically over the past year:

• After doubling its stock price, but halving its dividend, Sotheby's now yields a mere 1.1%.
• And as for the cash -- forget about it. While Sotheby's carries $116 million on its balance sheet, that's more than outweighed by the company's massive $511 million long-term debt load.

Foolish takeaway
What we have here, Fools, is a high-quality name, with a similarly high price tag, but exceedingly low-quality fundamentals. Debt-laden, cash-burning, and money-losing, Sotheby's symbolizes a once-vibrant economy now crashed.

Will the economy revive? Will Sotheby's again thrive? I have no doubt on either score. But the way I look at it, expectations of Sotheby's revival have already been more than priced into the stock's price. My advice: Don't get into a bidding war on this one, folks. Walk away.

Disagree? If so, you're not alone. While cognizant of the company's problems, the small-cap specialists at Motley Fool Hidden Gems haven't given up hope on Sotheby's. If you agree with them -- and with the Fools quoted above -- then here's your chance to state your case. Click on over to Motley Fools CAPS now, and tell us why you think Sotheby's has a future.