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 upward.

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, according to the smart folks at finviz.com, have more than doubled over the past year, and just might be ripe to fall back to earth.

Companies are selected by screening for 100% and higher price appreciation over the last 12 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.

Since the darkest days of early 2009, a change has come over the markets. People are starting to talk about an economic recovery more, and less about the end of civilization as we know it. Reports out of the Institute of Supply Management tell us that manufacturing activity grew in March, helping push smokestack stocks to new highs. And judging from the CAPS ratings we see up above, a lot of investors think the good news is just beginning, especially for five-starred Chicago Bridge & Iron.

The bull case for Chicago Bridge & Iron
CAPS All-Star xserver has been saying this for months, predicting back in December that the "Federal stimulus should help this one."

And fellow All-Star investor wuff3t agrees. Although "we may not ever return to those heady days [before the financial meltdown,] infrastructure spending will roar back once confidence does. ... CBI have been picking up contracts recently, and ... CBI is well positioned to make strong gains and outpace the markets as the global economy expands again."

Yet another of our All-Stars -- MagicDiligence this time -- sees especially bright prospects in "energy related projects for oil and gas companies," a field where Chicago Bridge is an industry leader. Notes MagicDiligence: "Chicago Bridge & Iron is not located in Chicago (in fact, headquarters is in the Netherlands!), and does not construct bridges. ... The bulk of revenues (almost 60%) come through the CBI Lummus division, which provides services for the design and construction of liquified natural gas (LNG) plants and terminals, oil and gas refineries, and pipelines. ... CBI relies on the oil and gas majors for the bulk of its business," counting everyone from ExxonMobil (NYSE: XOM) to Chevron (NYSE: CVX) to Saudi Aramco among its clients.

Bringing picks and shovels to a gold party
Now granted, the global natural gas industry has seen better days -- just ask Chesapeake Energy. But what's bad for gas suppliers is good for gas users. With oil still looking relatively expensive, chances seem good that a power-hungry globe will see logic in building more gas-burning plants in future years, which would in turn be good for Chicago Bridge's business.

Industry analysts tell us they expect the company to grow its earnings ($174 million last year) at about 11.5% annually over the next half-decade. When you consider that Chicago Bridge generates more cash from its business than it reports as "net profit" under GAAP, and also boasts a cash-heavy balance sheet, the firm's enterprise value-to-free cash flow ratio of 11 looks downright attractive.

So if you ask me, I actually agree with our CAPS members this time. Chicago Bridge & Iron is one rocket stock with more fuel to burn.

Time to chime in
Of course, that's just my opinion. If you've got a different one, here's your chance to tell us about it. Click over to Motley Fool CAPS now, and tell me why I'm wrong.