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 upwards.

Problem is, if the price goes up too much, even a great company can turn into a lousy investment. Below, I list a few stocks that may have done just that. These are 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.

Stock	Recent Price	CAPS Rating (out of 5)
Petro-Canada  (NYSE: PCZ)	$44.37	*****
Freeport-McMoRan  (NYSE: FCX)	$54.43	****
Rio Tinto  (NYSE: RTP)	$181.44	****
Advanced Micro Devices  (NYSE: AMD)	$4.54	**
Ford Motor  (NYSE: F)	$5.75	**

Companies are selected by screening for 100% and higher price appreciation year-to-date on finviz.com. Five stars = highest possible CAPS rating; one star = lowest. Current pricing provided by Yahoo! Finance. CAPS ratings from Motley Fool CAPS.

Each of these stocks has enjoyed remarkable gains over the past five months. And if you ask the 135,000 (and counting) investors who make up Motley Fool CAPS, it's high time that commodities stocks got back in the game. While there's little love lost between investors and AMD or Ford (the proverbial sick men of semiconductors and autos, respectively), Fools can hardly contain their enthusiasm for mining magnates like Rio Tinto and Freeport.

But even that isn't a patch on their desire to dig into shares of ...

Petro-Canada
Writing in January, nathanmcdo called Petro-Canada "one of the biggest Canadian energy companies ... and one of the oldest as well. ... They are a producer and a refiner, so much less susceptible to fluctuating energy prices. Has many catalyst in my mind and fits nicely into ... my dividend performer portfolio, as a play on energy, a LONG term buy."

How long is long? dustydiamond argued in December that: "Energy demand should increase significantly once this recession abates and capital spending accelerates. The BRIC economies also have consolidated and will heavily influence crude demand in their next growth cycle. Once crude prices get closer to $100 per barrel, the oil sands projects currently on hold should go back into production and ramp up their earnings going forward."

$100 is a nice, round number. As such, it's a price target that's attracting a lot of attention from Fools. Echoing dustydiamond's thoughts, in December mitleg wrote: "While I don't see an immediate rebound in oil prices, I would expect them to test $100 once the economy improves. This is a well run firm trading at a very reasonable price. It has a modest dividend yield, trades well below book, and has lower debt levels. Very attractive."

But perhaps you disagree that Petro-Canada is attractive? After all, with oil prices still well off their highs, the company's not earning as much as we might like. Depressed profitability has Petro-Canada shares fetching a P/E of 12, which doesn't look terribly attractive relative to 7% long-term growth estimates.

And as far as the dividend goes ... 1.7%? Are you kidding me? That's a bare fraction of the 6.8% that BP (NYSE: BP) stock yields (and BP's P/E is lower, too) -- and even after showering its departing CEOs with gifts, ExxonMobil (NYSE: XOM) has enough cash left over to pay shareholders a 2.4% divvy.

Still, consider that Petro-Canada boasts 888 million barrels of proven oil reserves, and another 1,215 billion cubic feet of proven natural gas reserves (equivalent to 202.5 million barrels). Add those figures together (so 1.09 "bboe" in all) and divide the company's market cap into that number, and Mr. Market seems to be ascribing a value of just $19.30 per barrel to this company's reserves. With crude oil currently trading for more than three times that price, and investors predicting it's headed higher still ... well, suffice it to say that I see a pretty strong bull thesis for this stock.

Foolish takeaway
Of course, the aim of this column isn't just to tell you what I think about Petro-Canada -- or even what other CAPS players are saying. We really want to hear your thoughts. Click on over to Motley Fool CAPS and tell us what you think.

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