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. Every day, investors read the list and tremble -- some with greed, others with terror. Within our Motley Fool CAPS investing community, these top stocks generally 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 Thursday and Friday last week. 52-week low and recent price provided by Yahoo! Finance. CAPS ratings from Motley Fool CAPS.

A sigh of relief … and then a roar
As fears of a Greek debt meltdown faded last week, traders released their white-with-fear grip on their Bloomberg terminals, markets gave a sigh of relief -- and stocks turned cautiously green again. Buyers came back to the market, sending some of the biggest names in stock-picking to new 52-week highs.

And here's the best news: Investors seem confident that a lot of these winners will keep on winning … and none more so than consumer goods stalwart Procter & Gamble.

The bull case for Procter & Gamble
CAPS All-Star Chemdawg comments: "now that the madness is over, the strong companies will start to shine again. … Consumer staples are naturally defensive in nature anyway as people tend to view personal hygiene as a necessity and so bad economic times should have minimal effects on consumer behavior in that sector."

jawilde agrees: "I want blue-chip companies that make essential products and provide a solid Total Return (dividends plus capital appreciation) potential. [Procter & Gamble] fits the bill perfectly." (Or as crashpik puts it: "Even when out of work America's residents will wash their hair and brush their teeth.")

Crest? Or "ACME toothpaste?"
And yet, All-Star investor xserver poses us a puzzler: In this economy, "[w]ill consumers return to buying the name brands? [Or] … are they just buying less or moving to the cheaper store brands?"

xserver's betting on the former, arguing that "the market is expecting far too little growth for this company. Plus, the dividend is nice." But last week the news seemed to be all about the latter scenario -- Americans "trading down" for bargain brands, and shying away from premium prices. Over at Wal-Mart (NYSE: WMT), we're seeing signs of retailers accommodating themselves to the "new normal" as they sweep premium brands like Clorox's (NYSE: CLX) Glad food storage bags off their shelves, making room for cheaper, store-name brands like Wal-Mart's "Great Value."

If this keeps up, it could put a dent in the 9% annual five-year earnings growth that Wall Street expects to see at P&G.

Cheer up, investor. Turn that frown-y upside Downy
As for me, though, I'm siding with xserver on this one. Maybe consumers are trading down, but that doesn't necessarily mean bad things for premium product purveyors like Clorox … or P&G. To the contrary, they may simply learn to play both sides of this trend.

Consider what Wal-Mart did to Pactiv, the maker of Hefty brand bags, which Wal-Mart had initially cut from its shelves.  But no sooner had Wal-Mart sent Hefty to the trash bin than Pactiv struck a deal to return the bags to store aisles … by agreeing to manufacture Wal-Mart's store brand bags for it. Result: Pactiv gets to sell premium bags to premium shoppers, while adding incremental sales whenever anyone trades down to the store's brand. Heads, Pactiv wins; tails, it doesn't totally lose. In the worst-case scenario, I see no reason why P&G wouldn't be able to steal a page from Pactiv's playbook and do the same thing with its brands as well.

Scope-ing out a deal at P&G
This being the case, I simply do not see Procter & Gamble as overpriced today. The stock boasts a Bounty-ful dividend yield of 2.8%, alongside a Charmin-ly modest multiple to earnings (just 15 times, and a 15 times enterprise value-to-free cash flow ratio to boot). Those are sharp discounts to the company's historical valuations.

If I may be so Bold as to suggest, I think P&G's Bounce in stock price is not over yet.

Whether you disagree or agree with the analysis above, I'm certain of one thing: You can come up with better Procter & Gamble puns than I have. Post your thoughts about the company over on CAPS, then come back here and wow us with your creativity in the comments section below (here are a few ideas to get you started).

Editor's note: A previous version of this article indicated that Clorox's Glad trash bags had been removed from Wal-Mart's shelves in favor of Wal-Mart's Great Value brand. when in fact it was their Glad food storage brand. The Fool regrets the error.