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 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 not always ...

Companies are selected from the "New Highs & Lows" lists published on WSJ.com on Friday last week. 52-week low and recent price 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, so it's really no surprise to see that most stocks on today's list earn above-average ratings. The trick is going to be choosing which of our four-star winners has the best chance of going on to further glory.

Fortunately, the friendly Fools at Motley Fool Income Investor have given us a push in the right direction. Only one of these companies bears both an above-average CAPS rating and the imprimatur of an Income Investor recommendation: Kimberly-Clark. And why do Fools believe K-C is A-OK? Let's find out.

The bull case for Kimberly-Clark
CAPS member jackizbackn09 starts us off with the phonetic, phlegmatic, if a wee bit enigmatic pitch: "AHHHHHH SWIIIIINNNNEEEE FLEEEEEEEWWWWWW."

Entertaining, but what does it mean? bobanour explains: "Health and personal care products should go up as flu(s) season is upon us ... not to mention personal tissue type products."

Fair points both. And yet, as long-term, we know better than to buy a stock on the basis of short-term trends like just the latest health scare. You wouldn't buy Blockbuster (NYSE:BBI) stock just because some big-name movie is about to come out on DVD, or invest in Ford (NYSE:F) simply because the Taurus is getting product placement on Fox TV Show Fringe. Likewise, we're going to need something a bit more substantial to justify an investment in Kleenex maker Kimberly-Clark.

Fortunately, CAPS All-Star edwjm believes Kimberly-Clark should keep doing well, even after flu season is but a fond memory of sniffles past: "This is a defensive pick because it is in consummer staples, pays a very good dividend and should hold up better than the S&P should the spring-summer rally we have seen so far now be terminated by a classic October massacre."

Discount paper towels
I agree. With a P/E of just 15 and a projected 11% long-term growth rate, Kimberly-Clark offers us a great way to invest in a portfolio of leading brands at a fair price. Toss in the beefy 3.7% dividend, which beats both Procter & Gamble (NYSE:PG) and Energizer, and I think we've found a real winner here.

When you consider further that K-C generates free cash flow far in excess of what it reports as net income -- $2.3 billion versus just $1.8 billion in "net earnings" – the stock looks even cheaper. Valued on its market cap, the stock sells for less than 12 times cash earnings. And even if you factor the company's modest debt load into the equation, Kimberly-Clark's enterprise valuation comes to less than 15 times free cash flow.

Time to fall?
That may not sound like a screaming bargain to you, but superior brand-collections like this one rarely come at a huge discount. Seems to me, this is a case where we should be reciting the Warren Buffett mantra – "great company, good price" – and just take advantage of the discount we're being offered, rather than quibble over its size.

Or not. Fact is, my opinion of the company isn't important here. What we really want to know is what you think about Kimberly Clark and its long-term, post-swine flu prospects. Got an opinion? We've got a place to share it.

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