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. Five stars = highest possible CAPS rating; one star = lowest. Current pricing provided by Yahoo! Finance. CAPS ratings from Motley Fool CAPS.

Each of these stocks has already enjoyed remarkable gains this year -- and this may be only the beginning. The 140,000 (and counting) investors who make up Motley Fool CAPS are still cheering them on to greater profits. But there's one stock that Fools love more than most, and it is the subject of today's column. Read on as we drill down into ...

The bull case for Weatherford International
One of the great things about Motley Fool CAPS is that, with 140,000 members and more joining every day, we're bound to find a few who have firsthand knowledge of the companies they rate. So let's start off today with a few words from CAPS All-Star sweetjames, who informed us earlier this year that Weatherford is: "Gaining a tremendous amount of market share vs Halliburton (NYSE:HAL) and Schlumberger (NYSE:SLB). They have been around forever, but I am noticing Weatherford more and more in the field."

Fellow All-Star TSIF calls Weatherford: "one of the most undervalued [oil service companies] that I could find ... With margins even in the recession at greater than 10%, P/B at 1.8, High debt, but very good cash flow and solid assets, Weatherford International stands to do well even in a slightly depressed climate." And more recently, another of our CAPS superinvestors, bklynmp3j, has noticed a trend of "insider buying" emerging at Weatherford.

A bullish signal? It could be, if true. But let's take a step back and quality check a few of these statements.

First, the bit about "insider buying" -- that one rings immediately false. While Yahoo! Finance does show a series of acquisitions by insiders taking place, closer examination suggests that these are little more than routine annual stock grants to members of Weatherford's board of directors. Six "transactions." Each for an equal number of shares. Each a "non-open-market" acquisition for a purchase price of $0. Heck, if I could pick up shares of a $22 stock for nuthin', I'd be a "buyer," too!

But what about the cash?
Are there other reasons to own the stock? TSIF says it's undervalued and churning out cash -- but once again, I don't see things the same way.

Oh, sure, Weatherford looks plenty cheap on the surface. The stock sports only a 16.5 P/E, which would be awfully attractive for the 35% annual grower than Wall Street expects it to become. Problem is, Weatherford's "profits" look illusory to me.

While it certainly generates "cash flow" aplenty -- more than $1 billion over the last 12 months -- it seems to spend the stuff even faster than it makes it. Capex of more than $2.3 billion has Weatherford bleeding red for free cash flow over the period. And in fact, this is par for the course at Weatherford. Over the last five years, the company's averaged just short of $400 million a year in annual cash-burn. (Incidentally, were this not the case, I doubt we'd see Weatherford carrying $6.5 billion in debt.)

Foolish takeaway
PEG ratio aficionados can find a lot to like in Weatherford. Insider trading spotters may take heart from a spurt of directors cashing in on their "jobs." And of course, anyone who thinks oil is bound to bounce back to the triple digits can find a bull thesis in Weatherford.

Personally, though, I think this stock is a dud. I wouldn't touch this debt-laden cash-burner with a 10-foot, diamond-tipped drill bit.

(Disagree? Join the club -- over on Motley Fool CAPS, we have nearly 800 Fools on the record on Weatherford, most of whom will tell you Weatherford's a diamond in the rough -- and that I'm a stark-raving loon. If you're in the mood to join the majority, click over to the site right now, and tell me why I'm wrong.)