Rocket Stock or Dud?

"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.

Now I readily admit that sometimes, stocks rise for a reason. But sometimes, the rise becomes the reason. No matter how often we caution them not to, investors do have a habit of buying "hot" stocks, and trusting momentum to keep 'em moving upwards.

Problem is, if the price goes up too much, even a great company can turn into a lousy investment. Below, I list a few stocks that may have done just that -- stocks that have more than doubled since the beginning of this year, and just might be ripe to fall back to earth.

Companies are selected by screening for 100% and higher price appreciation year-to-date on finviz.com. Current pricing provided by Yahoo! Finance. CAPS ratings from Motley Fool CAPS.

Each of these stocks has enjoyed remarkable gains over the past six months. But if you ask the 135,000 (and counting) investors who make up Motley Fool CAPS, most of them have come too far, too fast.

That worry may be well-founded for some of these firms. Fools worry that an impending price hike might scare off customers at Sirius. Rite Aid just dodged the bullet on a potential reverse share split -- only to find its stock rocked by anemic June comps. And although Trina Solar survived last week's LDK Solar (NYSE:LDK) scare-off fairly well, tumbling silicon prices have prospects looking increasingly cloudy for solar plays such as First Solar (NASDAQ:FSLR). Perhaps Trina's due for a tumble of its own?

Whatever the fate of these firms, there's one stock on today's list that's giving Fools few misgivings:

Targa Resources Partners
Why buy an LNG play in the middle of a lousy market for natural gas? paulshoe argues, "Natural Gas is at a bargain price that won't last. Even in a slowing economy; you have to heat your house. Dividend Yield, book value, P/E, growth potential, solid management are all screaming buy ME (NGLS)."

But it's the dividend yield yelling loudest of all. bothisellhigher loves Targa's "Dividend of 2.05" and points out that if this seems high to you, Targa has been "steadily increasing quarterly dividends since 5/15/07."

Can NGLS maintain that dividend? CAPS All-Star rdpatton thinks so. Writing in February, rdpatton argued that Targa is "Reasonably well hedged," and that "distribution looks secure for 2009 with low risk of debt covenant violations."

Me, I'm not so sure. I mean, Targa's dividend yield of 14% sure looks attractive, but I've my doubts as to how long a company can continue to pay out $2.05 a share when it's only earning $1.24 -- and when those earnings are expected to decline this year, and fall nearly 50% short of the dividend's requirement next year.

To me, Targa's situation would look pretty tenuous even if it were not carrying a debt load equal to its own market cap. (And it is.)

Time to chime in
That said, Targa's price doesn't look all that high -- the P/E is just shy of 12. Furthermore, analysts expect to see strong double-digit growth next year, trailing off to a long-term growth rate of about 8%. Seems to me that while Targa may not be able to sustain its current dividend, it could cut the divvy substantially (say, by half), conserve some cash while maintaining a respectable 7% yield, and still work out as a reasonably profitable investment.

But that's just my opinion. If you agree with rdpatton that Targa's dividend is secure, here's a chance to argue the point. Click on over to Motley Fool CAPS and tell us what you think. Or alternatively, maybe you think the dividend is toast, and the stock too? CAPS is the place to make that argument as well. Either way, fire away!