Get Ready for the Fall

"The bigger they are, the harder they fall." This old saying sums up the worst nightmare of every homeowner, every gold buyer, and every investor in today's market. Dare ye buy at the top?

Every day, Nasdaq.com publishes a list of the market's top stocks -- the companies whose shares have just hit their highest intraday price of any time in the past 52 weeks. Every day, investors read this list and tremble -- some with greed (big mo', baby!), and others in pure, unmitigated, acrophobic terror (whatever you do, don't look down).

Over on Motley Fool CAPS, thousands of investors just like you are watching these same companies and voting their gut on whether they'll keep rising or stumble and fall. Usually, the ratings wax optimistic as stocks hit new highs -- because everyone loves a winner. But what do you make of it when some of the smartest investors out there are panning a hot stock?

You could heed them. You could ignore them. You could take the stock tickers and construct anagrams from 'em. For my money, though, the best course of action is to use the "52-week high" list as just a starting point for further research. After all, stocks can go up for many reasons, and it's up to you to decide how worthy those reasons are. But thanks to Motley Fool CAPS, now you don't have to make the decision alone.

With that said, let's meet today's list of contenders, drawn from the latest "52-week high" list at Nasdaq.com. What does our panel of more than 60,000 stock gurus (and counting) have to say about them?

Everybody loves a winner
When stocks soar on the wings of success, you'd expect bears to become rare. So we actually get two surprises from this week's list: First, that anyone has seen a stock rise amid what appeared to be universal carnage last week. And second, that those few (those happy few) companies that are still hitting 52-week highs don't get more respect. Out of the seven stocks making today's list, the majority get only so-so support in CAPS-land.

And who's the unfairest of them all, in the minds of CAPS investors? Well, that would be snack-food icon Lance. And why do Fools dislike it so? Read on and find out.

The bear case against Lance
It's been a few weeks since I last sat down to watch Over the Hedge with my daughter -- but I could have sworn that bears liked snack foods. (This thesis was kind of central to the movie's plot.) Suffice it to say that the bears below apparently didn't get the memo. They don't like Lance -- not one little bit.

• kuandreas leads off with the laconic comment: "M*1." What's it mean? I'm only guessing, but I suspect that kuandreas is trying to tell us that Morningstar.com rates Lance one star out of its possible five. What a coincidence! So do we.
  
  
• In contrast to kuandreas' enigmatic critique, majakblue paints a crystal-clear picture of why Lance should underperform the market: "Stale unhealthy food that tastes yecch! I know that this company has been around for a long time and hasn't really gone anywhere, and no surprise. You have to start with a good quality product."
  
  
• And hypothetically speaking, if Lance did have that product? BryanHldn, arguing that the "fundamentals don't support price," still wouldn't like the stock.

Which raises the question: What fundamentals might those be? Well, taking a glance at the company's "key statistics" on CAPS (courtesy of our partner, Yahoo! Finance), I see that Lance boasts a trailing price-to-earnings ratio of 28. Call me crazy, but yes, that does seem a bit rich for a stock expected to grow profits at just 10% per year over the next five years.

But as bad as that sounds, the situation might actually be worse. Taking a look at the company's most recent quarterly report -- the one that drove the stock up 13% on Friday -- I see that Lance generated only $6.4 million in free cash flow during the first six months of this year. Multiply that by two to get a run-rate for the rest of this year, and what you get is a stock generating less than half as much free cash flow as it reports under GAAP as net income -- meaning the price-to-free cash flow ratio is significantly higher than even the P/E lets on. Roughly speaking, Lance trades for 63 times annualized free cash flow.

Long story short -- my instinct here is to agree with our Foolish panelists, and with BryanHldn in particular. Lance does indeed look overpriced.

Time to chime in
That said, the aim of this column isn't just to tell you what I think about these high-flying stocks, or even what our Foolish CAPS players believe. What we really want is to invite you to tell us what you think about Lance -- and the other stocks making today's list. If you can spare a few moments, please drop by CAPS and lend us your thoughts.

Fool contributor Rich Smith does not own shares of any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's ranked No. 759 out of more than 60,000 raters. The Fool has a disclosure policy.