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.

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. According to the smart folks at finviz.com, these stocks have more than doubled in the last half of '09, and just might be ripe to fall back to earth.

Companies are selected by screening for 100% and higher price appreciation over the last six months on finviz.com. Five stars = highest possible CAPS rating; one star = lowest. Current pricing provided by Yahoo! Finance. CAPS ratings from Motley Fool CAPS.

Last year's last-half market rebound was kind to these stocks, but can they maintain momentum through the rest of the millennium?

A survey of our 150,000 CAPS members suggests that while some of these shooting stars will fall back to earth in short order, others could keep flying high for years to come. Wireless equipment maker DragonWave and iron ore miner Cliffs both score high in the estimation of our investors, but the stock they love most of all is natural gas play McMoRan Exploration (a 1994 spinoff from its more famous bigger brother, Freeport-McMoRan (NYSE:FCX)).

Never heard of McMoRan Exploration? Never fear. Our Foolish investing community is happy to help acquaint you with ...

The bull case for McMoRan Exploration 
All-Star investor fdude71 gets us started with a brief intro, telling us that McMoRan is: "Engaged in exploration, development and production of oil and natural gas offshore in the Gulf of Mexico and onshore in the Gulf Coast region."

Why should we care? Fellow CAPS All-Star traderpat9 believes that: "natural gas is the BIG NEW BIG DEAL IN AMERICA." (You know it's gotta be true, because he wrote it in all caps ...)

Best of all, takingoff45 informs us that way down south, McMoRan has stumbled across an: "Oil & gas bonanza found in Gulf on Jan 2010!"

The bonanza to which takingoff45 refers is, of course, the Davy Jones field, which fellow Fool Toby Shute told us about earlier this year. Incidentally, it's also both the biggest argument in McMoRan's favor, and the biggest unknown for this stock.

You see, according to McMoRan's latest published figures, this company controls 271.9 billion cubic feet-equivalent of proven natural gas reserves. At current spot prices, this works out to $1.4 billion in asset value -- which I think you'll agree is a pretty paltry sum to support McMoRan's current $1.8 billion enterprise value. If this were the end of the story, the verdict would be clear: McMoRan's overpriced.

Don't judge a gas company by last year's numbers
Of course, it's not the end of this story. Located closer to shore than BP's (NYSE:BP) Tiber Prospect, McMoRan operates Davy Jones in conjunction with a series of smaller partners, including Plains Exploration and Energy XXI (NASDAQ:EXXI). Analyst estimates suggest that Davy Jones could contain anywhere from 2 trillion to 6 trillion cubic feet of natural gas.

So hypothetically, McMoRan's 26% interest in the field could boost its proven reserves by anywhere from 520 billion to 1.56 trillion cubic feet-equivalent -- roughly two to six times the company's currently proven reserves.

Time to chime in
Will Davy Jones play out as investors hope? Honestly, I haven't a clue whether McMoRan is worth all the prospects that are priced into its stock today.

Fortunately, I'm not alone. Somewhere out there in CAPS-land, I'm certain someone knows more about this question than I do. If that's you, here's your chance to shine. Click over to Motley Fool CAPS now. Tell us what you think is down there in Davy Jones' locker, and whether you think McMoRan's all it's cracked up to be.

Inquiring Fools want to know.