"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 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 140,000 stock gurus (and counting) in CAPS have to say about the list's latest contenders:


52-Week Low

Recent Price

CAPS Rating
(out of 5)

DreamWorks Animation SKG (NASDAQ:DWA)




Kinross Gold (NYSE:KGC)




Agnico-Eagle Mines (NYSE:AEM)




GoldCorp (NYSE:GG)








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

As the market rally stumbled last week, investors took shelter in shiny metal -- and the companies that mine it. Kinross, Agnico-Eagle, and GoldCorp in particular have enjoyed strong gains.

Gap made the list based on the relative strength of its comparable sales in August, while DreamWorks ... well, you can probably guess what's behind its rally. When Disney (NYSE:DIS) offered to buy Marvel Entertainment (NYSE:MVL) last week, some investors seemed to decide that DreamWorks is now attractive as well. But not everyone agrees ...

The bear case against DreamWorks
As far back as February, CAPS member srk85 was beating the drum and warning that DreamWorks was "[o]vervalued compared to industry." In contrast to Marvel with its cast of thousands of characters, budgallant argued in May of last year that "Shrek was a one hit wonder and they've been beating that dead horse for the last several quarters. They are not the best thing after Pixar, they are a Pixar wannabe. Look at the quality of their animation... Their CGI is archaic and cheap looking. ... It's all about the brand these days... They are an imitator, and aside from Shrek, they have no brand at all."

That's a point that scthiel dramatically illustrates with this puzzler: "Ask yourself this before you buy: can you name a movie (besides Shrek) that [Dreamworks] has made? Can you name two? Now see how many Pixar movies you can name."

And I have to admit, Fools -- I can't. Oh, I could Google the answer, sure. But off the top of my head? No. Shrek's the only title that comes to mind. So while a few of the DreamWorks detractors go a little over the top in making their point, they do have a point. Now let me make mine:

Valuation matters ...
... and DreamWorks costs too darn much. Honestly, that's what it comes down to for me. While I cannot name a second DreamWorks movie, that's not the clincher, because I'm simply not enough of a cinephile to trust my judgment on that one. What I do trust is my eyes, and what I see on DreamWorks' financial statements scares the bejeezus out of me:

  • A market cap 17 times as large as trailing earnings.
  • Free cash flow that significantly lags reported earnings, pushing the price-to-free cash flow ratio far higher.
  • A mere 9% projected five-year growth.

Foolish takeaway
Do DreamWorks shares sell for a bit less than what Disney is paying for Marvel? Sure. But, to paraphrase a politician I once heard: "I know Marvel. Marvel's a stock of mine. And DreamWorks, you are no Marvel."

Unless DreamWorks finds itself a "greater fool" than Disney -- one willing to pay top dollar for bottom-of-the-barrel quality -- I simply do not see how the stock can continue to support its present valuation. Long story short, I think DreamWorks is going down.

(Disagree? Feel free. Just click on over to Motley Fool CAPS and tell us why.)

Walt Disney, DreamWorks Animation, and Marvel Entertainment are Motley Fool Stock Advisor recommendations. Walt Disney is also an Inside Value pick.

Fool contributor Rich Smith owns shares of Marvel. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 491 out of more than 140,000 members. The Fool has a disclosure policy.