"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, 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 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 the more than 125,000 stock gurus (and counting) in CAPS have to say about the list's latest contenders:


One Year Ago

Recent Price

CAPS Rating (out of 5):

American Science & Engineering 





Myriad Genetics  (NASDAQ:MYGN)




ITT Educational  (NYSE:ESI)




Anadys Pharmaceuticals  (NASDAQ:ANDS)




American Italian Pasta  (NASDAQ:AIPC)




Five stars = highest possible CAPS rating; one star = lowest. Companies are selected from the "New Highs & Lows" lists published on WSJ.com on the Saturday following close of trading last week. One-year-ago and current pricing 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 -- or so the story goes. Investors don't seem to be reading from that playbook this week, however. Fact is, they're downright depressed about most of the stocks hitting 52-week highs right about now. Sounds like somebody could use some comfort food.

Or not.

The bear case against American Italian Pasta 

  • Rarely have I seen investors so incredulous about a stock making this list as they are about American Italian Pasta. The pitches our CAPS members are posting practically scream amazement -- and in some cases, you can drop the "practically." Take CharlieBombay, for example, who writes simply: "Shorting the pasta pop!"
  • Watching the stock climb against all odds last July, kurthauer1998 simply muttered in amazement: "P/E of 40 for a company that makes pasta in the US?"
  • Sure! Why not? Oh. CAPS All-Star redneckdemon is about to tell us why not: "Enormouse debt and nowhere near enough cash or earnings to cover it. This company has done very well over the last year, but I don't see that trend continuing."

"Enormouse," eh? So apparently there's a rodent problem in the pasta factory? (OK, that was a cheap shot. Not everyone has spellcheck in their browser.)

More substantively, I do have to point out that redneckdemon's comments seem somewhat exaggerated. Sure, American Italian has a heaping pasta bowl full of debt -- more than $241 million of the stuff, against just $41 million in cash. But according to its income statement, the company actually is generating enough earnings to service the debt. Its interest coverage ratio comes to a tight, but adequate, 2.5.

More troubling to me than American Italian's ability to service its debt today,however, is what happens if customers like SYSCO (NYSE:SYS) or Wal-Mart (NYSE:WMT) cut back on their pasta purchases tomorrow. Or -- thinking of Wal-Mart in particular here -- use the recession as an excuse to pressure American Italian for price concessions on its products, squeezing profit margins?

I mean, the stock's already trading at a pretty lofty multiple. It's 26 times earnings for a 10% grower. To my mind, it wouldn't take much of a shock to upset this particular pasta cart. As an investor, I'm not at all sure I'd want to be aboard when (or if) that happens.

Time to chime in
But hey, feel free to disagree. Pasta's certainly a logical foodstuff to invest in in recessionary times. If you think American Italian Pasta will survive the Easy-Bake Oven of our national recession, here's your chance to argue the point. Just click on over to CAPS and tell us why.

Wal-Mart is a Motley Fool Inside Value recommendation. American Science & Engineering is a Rule Breakers selection. Try either newsletter service, free for 30 days.

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 was recently ranked No. 1,247 out of more than 125,000 members.