Rocket Stock or Dud?

"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. 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.

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 already won big this year, but how many of them can keep on winning? Our 145,000 CAPS members seem unenthusiastic about most of these companies' chances of continuing this year's winning streak into the new year. There is one stock, however, that we believe can keep on powering higher:

Linn Energy
CAPS member SunSurgery encourages us to: "Do the math. Underperforming sector set to turn around, great undervalued company, big dividend, Lots of reasons to like this one." Namely: kramsigenak LINEs up the reasons to own Linn: "Majority insider holding. Lots of valuable land & excellent record of producing nat gas reserves. Strong fundamentals and excellent 10% dividend."

Bamafan68 avers that: "As long as [Linn] can continue to afford 9.5-10.5% yields, I will be more than happy to keep buying the stock. It has apparently done a good job of hedging natural gas futures which has positively affected profit margins. We'll have to see if [Linn] can remain as prescient beyond 12 months."

Buy the numbers
It's encouraging to see so much optimism among investors, and I must say that Linn's monster dividend yield (currently 9%) and low apparent valuation (a 5 P/E, versus consensus expectations of 7% long-term growth) do entice. But let's take SunSurgery's advice and do some extra-credit math of our own:

As of year-end 2008, Linn boasted proven reserves of oil, gas, and natural gas liquids amounting to 1,660 billion "cubic feet equivalent." With natural gas currently going for $5.75 per million BTUs, this values Linn's assets at roughly $9.8 billion – roughly 80% higher than the company's current enterprise value.

By way of comparison, we're still seeing gas industry goliaths like Chesapeake Energy (NYSE:CHK) and Anadarko Petroleum (NYSE:APC) sell for similar valuations -- very roughly speaking, many nat-gas companies you find these days are selling for half the value of their still-in-ground assets.

Time to chime in
Numbers like these keep Yours Fool-y feeling awfully optimistic about stocks in the nat-gas sector -- Chesapeake, Anadarko, and now ... Linn Energy. You, however, are welcome to hold a contrary view. So if you're feeling down on the LINE, here's your chance to tell us why.

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