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 hot stock just before it takes a nosedive.

Every day, Nasdaq.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. In our Motley Fool CAPS investing community, these top stocks usually enjoy favorable ratings, since everyone loves a winner. But what should you do when some of CAPS' smartest investors pan one of these hot stocks?

For starters, consider using the "52 week high" list as a starting point for further research. Stocks can rise for many reasons, but a little help from Motley Fool CAPS can make it easier to figure out how worthy those reasons are. Let's see what some of the more than 105,000 stock gurus (and counting) in CAPS have to say about the list's latest contenders:

Companies are selected from the "NASDAQ 52 Week High" list published on Nasdaq.com on the Saturday following close of trading last week. Year-ago and recent prices provided by Yahoo! Finance. CAPS ratings from Motley Fool CAPS. NA = not applicable. Heckmann’s IPO was Nov. 13, 2007, at $8 per share; Beneficial Mutual’s IPO was July 16, 2007, at $10 per share; Vantage Energy began trading on June 8, 2007, opening at $7.38 per share.

Everybody loathes a winner (?)
When stocks soar on the wings of success, bears become rare -- or at least, that's the way things usually work. This week, though, we're presented with a list of five stocks hitting their highest marks of the past year, and getting no respect whatsoever for the achievement. Only one of the companies receives even the grudging acceptance of a three-star rating; another just barely crept into four-star territory; two more are paddled with two-star ratings ... and then there's Vantage Energy Services, roundly panned as a mere one-star stock. What gives?

Here's what gives
Vantage has been a public company for about a year now, and yet it's gone almost unnoticed on CAPS. Only 11 players have rated the stock, and only two have bothered to write pitches explaining why they like or dislike it. Fortunately, one of those two comes from one of the very best investors on CAPS -- All-Star player Allstar13913. Here's what he has to say about it:

This is an SPAC, an [acquisition] company in search of a product. This company has decided on buying 4 oil rigs and deploying them. I despise SPACs because they give 20% of equity in the acquired company to management, at the expense of shareholders. This is bad for fools... I don't trust a company that ... puts the needs of executive ahead of shareholders. This company is [definitely] going down.

Perhaps inspired by an article that my esteemed Foolish colleague Toby Shute put out last month, five other investors, including the only other All-Star to rate the stock, have agreed with Allstar13913 that things look bad for Vantage. But me? I'm not so sure.

When I read Allstar13913's write-up, Vantage sounds awfully reminiscent of another stock that's just plain creamed the market averages despite its questionable pedigree. Maybe you've heard of it? DryShips (NASDAQ:DRYS)? Plus, companies like Transocean (NYSE:RIG) and Pride International (NYSE:PDE) have both done awfully well in the deep-sea drilling space lately. Vantage boasts execs poached from both companies. Seems to me there's at least a possibility it could do similarly well.

You know, once it gets some assets ...

Time to chime in
Of course, the aim of this column isn't just to tell you what I think about Vantage Energy -- 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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