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 ...

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.

Each of these companies hit a new 52-week high last week, and judging from the opinions of our 140,000 CAPS members, several of these stocks still have room to run. Fools may not think much of Goldman Sachs' chances, but they do see the valuations on Visa and Agnico-Eagle as not unreasonable. And TransDigm and Marvell? Those two appear downright cheap -- winning both of them an above-average rating of four stars on CAPS.

Which of the four-star stocks shall we profile today? That's easy. Anyone who's interested can read why we like TransDigm in the pages of Motley Fool Hidden Gems (and if you're not a member yet, you can pick up a free trial for a sneak peek right here). In contrast, Marvell, market-capped at $10 billion, is too big for a Hidden Gems rec -- but just the right size for us to profile here. Without further ado, let's talk about ...

The bull case for Marvell Technology
CAPS member STUGAN likes the fact that Marvell's products can be found within both "the Blackberry and I-phone." greatstockhunter looks at this and comments: "No matter [whether Apple (NASDAQ:AAPL)] wins or [Research In Motion (NASDAQ:RIMM)] wins, Marvell Tech Group is going to win coz it makes tranceivers for both companies' smart phones." Meanwhile, danno1234 looks even farther out for growth -- and finds it in the "China cell phone market [and] netbooks."

So Marvell's got both China and Apple going for it? It's hard to find growth stories any bigger than those two. Still, we've all been burned before by investing in "story stocks." Let's take a quick look under the hood, and see if there's anything behind the predictions of beaucoup growth.

At first glance, you might not see any reason to love Marvell. Thanks to sizeable charges for legal settlements and asset writedowns in recent quarters, this stock doesn't even have a P/E.

But what it does have is even better than GAAP profit: free cash.

Look past the vagaries of GAAP accounting, and what you'll find at Marvell is a semiconductor company generating $660 million in free cash flow over the past 12 months. Based on that data, this supposedly "unprofitable" stock is actually selling for just 15.1 times its annual free cash. Relative to analyst expectations of 15% long-term growth, that looks just about right ...

... except that Marvell is even cheaper than that. Valuing the stock on its cash flow alone ignores the fact that years of profitable operation have built up a tidy $1.3 billion cash surplus at the company, pushing its enterprise value-to-free cash flow ratio down to just 13.5. And this, Fools, is cheap enough to make Marvell a buy in my book.

Time to chime in
Of course, that's just my opinion. Disagree? Feel free. Click on over to Motley Fool CAPS and tell us why.