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.

"Everybody loves a winner"
Well, maybe not everybody ... or even most people. Our five 52-week high-hitters are mighty short on popularity this week. Visa and AmEx get little more than a shrug from the 140,000-plus-member Motley Fool CAPS community. MasterCard and Starbucks merit even less. With stocks looking expensive, unemployment on the rise, and the economy in the dumps, it's almost enough to drive a Fool to drink.

Speaking of which, have you heard ...

The bull case for Diageo?
Even if the company's name sounds unfamiliar, you may be better acquainted with Diageo's products. 3dollarhedgefund gives us a quick list:

Their brands include Guinness, Johnny Walker, Captain Morgan, Gordon's, Tanqueray, Smirnoff, Hennessy, and a variety of particularly fine single malts including Caol Isla, Oban, Talisker, and Lagavulin. At 13 to 14 times trailing earnings, with a fairly consistent revenue stream and a 3.5% dividend yield, it would be an appealing business in any case.

CAPS All-Star havoc315 takes one look at these numbers and declares: "Love the fundamentals, good P/E."

And as fellow All-Star investor typeoh reminds us: "Stocks go up, stocks go down, but people will ALWAYS eat, smoke, drink and gamble. Great play on their many great drinking brands."

typeoh seems to state a truism here ... but is it the same kind of truism as "everybody loves a winner?" As we saw in the table above, such common assumptions don't always play out in real life. For example, recent sales weakness at Altria (NYSE:MO), and megalosses at MGM Mirage (NYSE:MGM) demonstrate that in a recession as bad as this one, some people will give up smoking and gambling. What about drinking?

Bottoms up!
Perhaps liquor is the exception that proves the rule. Even if we're smoking and gambling less, it appears we're drinking quite a bit more. Diageo's sales rose 15% in the fiscal year that ended in June. Analysts predict the company will keep on growing, as profit increases an average of 9% per year over the next five years. Strong performance like this, in good times and bad, helps to explain why Diageo's stock has performed so well over the past year. (Its current 3.6% yield probably doesn't hurt.)

Diageo's pricey 15.6 P/E and less-than-thrilling free cash flow, which consistently runs below reported net income, tell me that buyers today probably won't soon find themselves drunk with profit. Still, there's something to be said for a steady dividend yield in troubled times. If you're looking for a reliable stock to brace your portfolio against further market turmoil, this just might be the one you're looking for.

Time to chime in
Or not. My opinion of the company isn't important. Nor are we here just to review what other CAPS members have said about Diageo. We really want to know whether you think the stock can continue ourperforming. If you've got an opinion, we've got a place to share it.

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