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. Every day, investors read the list and tremble -- some with greed, others with terror. Within our Motley Fool CAPS investing community, these top stocks generally 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, recent price, and CAPS ratings from Motley Fool CAPS.

A sigh of relief ... and then a roar
As fears of a Greek debt meltdown continue to fade, traders have released their white-with-fear grip on their Bloomberg terminals, markets given a sigh of relief -- and stocks turned cautiously green again. The S&P 500 just posted its second positive week in a row, and some of the biggest names in stock-picking are once again hitting 52-week highs.

Judging from the CAPS ratings being handed out, investors seem confident that many of these stocks have further room to run -- and none more so than network storage specialist EMC.

The bull case for EMC
Calling EMC a "world leader in special needed area," CAPS member lewloG expects the company to benefit from this budding "cyclical turnaround in the economy."

And EMC is more than just basic storage. As pmarty59 reminds us, in addition to being a "Data storage leader," EMC also boasts a "huge lead also in cloud computing thanks to its majority stake in [VMware (NYSE: VMW)]."

CAPS All-Star cashkid79 agrees. Examining EMC from his special vantage with "the background I do in IT world," cashkid79 argued last year that "the only thing I see happening here will likely be new record growth."

A matter of degrees
Now, some investors might quibble with that last statement. (I mean, what's the likelihood, really, that $39-billion-market-capped EMC is going to post literally "record" growth compared to the growth it posted as a younger company?) But cashkid79's got his heart in the right place, and is thinking along the right track here. Going forward, the world's only going to accumulate data -- not shed it -- and that data's gotta be stored somewhere, somehow. To me, EMC seems a likely beneficiary of that trend.

And I'm not alone. In addition to my own bullish stance on the company, and the CAPS members giving this stock five stars, Wall Street analysts generally agree that EMC will grow in excess of 14.4% per year over the next five years -- very close to the 14.8% pace it set over the last five years. And while 14.4% may not be a record, it's still quite respectable, and also quite a bit higher than the expectations for data storage rivals like IBM (NYSE: IBM) and Hewlett-Packard (NYSE: HPQ).

To my mind, it's also more than enough to justify the stock's price. Right now, EMC sells for roughly 13.3 times its annual free cash flow. What's more, the company boasts some $3.6 billion in net cash on its balance sheet -- enough to bring the enterprise value-to-free cash flow ratio on this tech giant down to 12.

Time to chime in
Here at its 52-week high, and sporting a P/E near 36, a lot of fools (small "f") focusing on earnings only will argue that EMC is overpriced and doomed to fall. True Fools (capital "F"), however -- those who focus on cash flow -- believe that this is not necessarily true.

I won't say EMC is the most undervalued stock I've ever seen in my lifetime, but at this price, it's pretty durned close.

(Disagree? Feel free. Click over to Motley Fool CAPS now, and tell me why I'm wrong.)

EMC's stock has nearly doubled over the past year. How do you know when "the train has left the station" and it's too late to buy? Here's how.