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 ... and even when they do, the story's not always what you might expect.

Companies are selected from the "New Highs & Lows" lists published on WSJ.com on Friday last week. 52-week low, recent price, and CAPS ratings from Motley Fool CAPS.

Knives and knaves
Investor opinions run the gamut on these stocks -- from Avanir (apparently anathema to CAPS members), through Rackspace (which we're putting on a shelf despite its endorsement from Motley Fool Rule Breakers), all the way up to generally hospitable feelings for Spartan and HLTH.

Personally, I'm tempted to choose Spartan as today's profile company. The company builds specialized armored vehicles for the U.S. military, on contract to two of my favorite companies: General Dynamics (NYSE:GD) and Force Protection (NASDAQ:FRPT). Moreover, Wall Streeters have been tripping over each other in their eagerness to snap up Spartan shares.

But the more I think about it, the more it seems to me that another company has the more interesting story this week. Let's learn a bit about it, as we explore ...

The bull case for HLTH Corp.
If you ask CAPS All-Star billcaps, he thinks HLTH is a prescription for "baby boomers+health concerns+easy internet access=growing market."

A few lines above, I mentioned that one reason I'm inclined to favor Spartan Motors is its connection to megadefense contractor General Dynamics. As it turns out, HLTH has a hotline to the General as well. XMFLulu mentioned last summer that: "HLTH just sold off it IT unit ViPS for a nice profit - bought in 2004 for $160M, sold to GDIT for $225 yesterday."

So HLTH is a smart shopper -- and a smart seller. But don't fret. You don't need to be a genius to understand this business. In fact, DCpicker argued back in 2007 that this is one great reason to own HLTH -- because it's got a "Relatively simple business model that should do well as healthcare intelligence, particularly of the consumer-driven kind, becomes an increasingly valuable commodity."

All together now: "How simple is HLTH's business model?" And the answer is: "Pretty simple." HLTH operates uber-popular health information website WebMD (NASDAQ:WBMD), which provides the bulk of its revenues and profits. So investing in HLTH at a P/E of 22 is essentially a cheap way of buying into WebMD and its 33 P/E. (Neat trick, huh?) Seeing as most investors seem to think WebMD is the real prize here, that's an attractive proposition.

That said ... I'm not interested in taking advantage of it myself. Why not? Well, folks, because when I set the two companies side by side, I think you actually get a better deal by buying WebMD directly rather than sneaking in through the side door. You see, while the respective P/Es suggest that HLTH is the cheaper company, I believe the opposite is actually closer to the truth.

Dig into the companies' financials, and you'll soon see that HLTH is generating only about half the free cash flow of its operating subsidiary -- and is expected to grow more slowly than its most successful division to boot. (This may explain why the daughter corporation here is actually valued higher than the parent.)

Foolish takeaway
So is HLTH a stock doomed to fall? Maybe not, but given my druthers, I'd much rather directly own WebMD, its $57 million in trailing free cash flow, and its 22% growth rate, than HLTH, its $27 million, and its 14% pace of growth. (But that's just my opinion -- and as you can see from my CAPS scorecard, I'm often wrong about these things.)

Fortunately, I'm not in this thing alone. The whole idea behind CAPS is to tap the collective wisdom of you 135,000 -- and growing -- CAPS members to find out what you think about the companies profiled in this column. So whaddya say, folks? Lend a Fool a hand?

Click on over to Motley Fool CAPS and sound off on HLTH, its subsidiary -- or really, any other company you've a mind to. It's fun, it's free, and it just might make you famous.