Get Ready for the Fall

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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.

Every day, WSJ.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 130,000 stock gurus (and counting) in CAPS have to say about the list's latest contenders:

Stock	One Year Ago Today	Recent Price	CAPS Rating (out of 5)
VistaPrint	$34.87	$37.26	***
AMAG Pharmaceuticals (Nasdaq: AMAG)	$40.42	$49.00	***
Limelight Networks	$2.88	$4.88	**
Palm (Nasdaq: PALM)	$5.76	$10.92	*
Interoil Corp (NYSE: IOC)	$21.79	$35.22	*

Five stars = highest possible CAPS rating; one star = lowest. Companies are selected from the "New Highs & Lows" lists published on WSJ.com on Friday last week. One year ago and current pricing provided by Yahoo! Finance. CAPS ratings from Motley Fool CAPS.

"Everyone loves a winner"
That truism gets sorely tested this week, as we find not a single stock on this list of 52-week high-hitters garnering rave reviews. To the contrary, CAPS investors give just two stocks -- VistaPrint and AMAG Pharmaceuticals -- so much as a passing, three-star grade. Everyone else? Thumbs down.

Who's the worst of the lot? That's a matter of opinion. I argued that Palm was likely to get slapped just a few weeks ago -- and for reasons that largely hold true today. So today, let's look instead at the other one-star stock on this list. Let's dig into ...

The bear case against Interoil Corp
CAPS All-Star TheGarcipian spotlighted this one as a short way back in 2007, panning Interoil for showing "[n]egative numbers on all substantial measurements. Doing work in Papau New Guinea; quite a far-away place and possibly very difficult to track exactly what is going on inside this company. I have a sneaking suspicion that this company is not as up-front as it could be."

cashsage pointed out back in January that "Boone Pickens sold off his stake in IOC before 2008-09." Not dispositive, certainly. But Mesa Petroleum founder and Clean Energy (Nasdaq: CLNE) investor Pickens certainly knows a thing or two about oil. His decision to exit Interoil would carry more weight with me than banker Wells Fargo's (NYSE: WFC) decision to remain invested.

And most recently, EclecticRecluse weighed in with a critique of the firm's "Low Sales and Return on Equity."

As far as the company itself goes, here's what I see at Interoil:

• A profitless concern, where negative operating income means that the company must constantly seek new funds to pay interest on its debt.
• A company much more skilled at burning through cash than at extracting combustible fuels. Free cash flow for the past five years amounts to negative $430 million
• A bottom-heavy balance sheet, carrying nearly $119 million in long-term debt, significant short-term borrowings (some $69 million), and $49 million cash.
• And one that, lacking cash, has a history of tapping gullible shareholders to fund its cash-burning ways. Interoil's share count has increased 45% in five years.

Suffice it to say -- I'm not optimistic about the company's prospects.

Time to chime in
And yet, oil exploration is the ultimate in capital-intensive enterprises. Just because I am not enamoured of the company's prospects doesn't mean that you won't see hope for an eventual payoff. So, whaddya say, Fool? Do you like Interoil's chances of making good on investors' investments? See any chance that ExxonMobil (NYSE: XOM) or BP (NYSE: BP) might step up to the plate and buy these folks out?

Click on over to Motley Fool CAPS, and tell us what you think.