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 upwards.

Problem is, if the price goes up too much, even a great company can turn into a lousy investment (and if the company was less than great in the first place, well...). Below, I list a few stocks that may have done just this. 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.

Have you invested in Ford lately?
We begin today's story with Ford: We've all watched in awe as Ford mounted its comeback against a struggling GM and scandal-tarred Toyota Motors (NYSE: TM). CAPS member Pandalam calls this a "great turn around story. Great products in the pipeline. Great CEO. Great company." And LWILLS agrees that Ford is just getting started: "Ford is producing cars Americans want to buy and should be the overall market with their growth over the next 5 or so years." ("Be" the market? Beat the market? Could this be an optimistic, Freudian slip?)

A similar turnaround story is taking place at Starbucks. SaxMD sees them "changing their game plan" with the introduction of instant coffee and the expansion of the Seattle's Best brands," even as emptygestures praises Starbucks for remaining "a dominant company regardless of McDonald's (NYSE: MCD) threat."

But not all Fools agree. In fact, so many disagree that neither Ford nor Starbucks is able to rise past sub-par two-star status on CAPS. In contrast to these two brand-name, but largely unloved companies, today's top stock is one you've almost certainly never heard of.

The bull case for Timken Co.
With a name reminiscent of a '50s TV heroic dog, Timken seems an unlikely suspect for five-CAPS-stardom. Regardless, it's the Fool fave this week -- by a mile. CAPS All-Star ALPHADividend discovered Timken last year while searching for stocks "trading below reported book value ... paying high dividends ... [and operating] outside of the FIRE (financial insurance real estate) sector of the economy." And yet, after running up more than 100% over the past 52 weeks, Timken now trades for just over twice its book value, even as its dividend yield has dropped to a meager 1.1%. Has this company already had its day in the sun, or is there still more room to run?

Two Fools' musings -- both predating ALPHADividend's pick, suggest there's more gains here to be had.

wschwartw pointed out last year that Timken is "a solid company with good historical earnings." And as for the future, All-Star investor hens05 notes that because Timken's "ball bearings are used in wind energy," the stock could "bounce nicely on market recovery."

And it seems that's a popular view. According to the consensus of seven separate analysts who track the stock, Timken is poised to enter an extended period of exceptional growth as America's power, automobile and aerospace industries gear up for a recovery. Believe it or not, the consensus forecast for this stock is (better sit down for this) 38% compound annual profits growth over the next half decade.

One word: Wow
That's all I can say about this prediction. I mean, I've heard about the recovery in American heavy industry and all, but 38% growth? That's a pretty impressive number.

It is, however, one you might want to take with a grain of salt. Seeing as Timken currently has no trailing profits to report, it's not quite clear what Wall Street is basing its 38% estimate on. Tellingly, we see a spectacular rate of growth posited for the similarly unprofitable Timken competitor U.S. Steel (NYSE: X) -- while profitable Arcelor Mittal (NYSE: MT) is pegged for only 8% growth.

But still and all ... wow. I mean, Timken generated $446 million in free cash flow last year, and is priced at just seven times that sum. With numbers like these, even Arcelor's 8% growth rate would be enough to make the stock look cheap. And at 38%... you just might find yourself pricing monacles and top hats, and shopping for private islands in a few years.

Time to chime in
Or not. You've heard what I think about Timken. You've read what our CAPS members have to say. Now it's your turn to tell us what you think about Timken. Is it a buy? Tell us why. (Or why not.)