"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...) Below I list a few stocks that may have done just this. Stocks that, according to the smart folks at finviz.com, have doubled (or nearly so) over the past year, and just might be ripe to fall back to earth.



Recent Price

CAPS Rating
(out of 5)

InterDigital (Nasdaq: IDCC) $50.81 ****
AIG (NYSE: AIG) $40.00 **
Uranium Resources (Nasdaq: URRE) $3.34 **         

Companies are selected by screening for 100% and higher intraday 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.

Question: What do digital wireless patents have to do with mining for uranium? What do either of these activities have in common with selling insurance? Answer: Businesses engaging in these endeavors have some of the hottest stocks in the market today.

Over the past 52 weeks, shares of digital wireless IP shop InterDigital have more than doubled in price. AIG, set to follow Citigroup and General Motors down the profitable path to public ownership when it offers a "re-IPO" later this year, has done nearly as well, and would be showing a double, but for the split-off of warrants attached to its publicly held shares last month. Meanwhile, a lack of profits, and near-lack of revenues, hasn't prevented stock in Uranium Resources from posting a near-four-fold increase in value over the past year -- returns that put those of boringly profitable competitor Cameco (NYSE: CCJ), and almost-profitable U.S. Energy (Nasdaq: USEG), to shame.

And yet, surveying the 170,000-plus investors who make up the Motley Fool CAPS universe, it seems the only stock investors feel truly optimistic about is InterDigital. What makes this stock so much better than AIG? Why does a "mere double" lag 391%-gainer Uranium Resources in investor love? That's what we aim to discover today.

The bull case for InterDitigal
CAPS All-Star rdwolf34 introduces us to the company: "InterDigital is a well established (30 year approx.) Wireless (3G,4G (LTE), WiFi, etc.) IP company. They have most all the Mobile phone manufactures phones paying them for their patents and they keep coming out with new patents/IP in emerging Wireless technologies."

CAPS member Pboynton predicts more of the same as InterDigital capitalizes on "expanding mobile applications using their patents." Even more importantly, All-Star investor alphadogg notes that with expanding patent usage comes "great" cash flow growth.  

Over the past 12 months, InterDigital generated nearly $148 million in free cash flow. While this notoriously lumpy financial metric has waxed and waned over time -- sometimes exceeding last year's result by two times or more -- the long-term trend does appear to be upward. Averaging out the returns to gauge the firm's long-term profit-making potential, we find that InterDigital generated free cash flow at an average rate of $174 million per year from 2005-2010.

Time to chime in
Whether you place your faith in GAAP accounting standards (under which InterDigital trades for the tempting price of just 14.4 times earnings, versus 17.5% long-term projected growth) or in my own preferred metric of price-to-free cash flow (which tells us InterDigital is even cheaper at less than 13 times its long-term rate of cash generation), it's hard to argue that InterDigital is anything but cheap at today's prices.

But hey -- feel free to try. If you believe InterDigital's doubling in share price makes the stock too expensive to own today, here's your chance to tell us why. Click over to Motley Fool CAPS now, and sound off.