Sometimes, stocks rise for a reason. But other times, investors get mired in a momentum mind-set, and that rise becomes the reason. Sadly, even a great company can turn into a lousy investment if its price reaches too great an altitude -- and a shaky company can become an outright disaster.
Below, I list a few stocks that may have flown too close to the sun. According to the smart folks at finviz.com, these companies shares have nearly or entirely doubled over the past year, leaving them potentially poised to fall back to earth.
CAPS Rating (out of 5)
Companies are selected by screening for 100% and higher intraday price appreciation over the past 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.
Last week was a rough one for investors, as the Dow lost nearly 2% and the Nasdaq finally turned negative for the year. As sentiment sours, investors are beginning to wonder where the next shoe will drop, and who will get stomped.
I've listed three stocks that have racked up at least 100% gains over the past 12 months. Orthopedic implants, business process management software, and oil-drilling equipment don't have a lot in common, but combined, they've enabled shareholders in these three companies to rack up 730 points' worth of gains and greatly outperform the S&P 500.
(Pause for applause.)
Each of these stocks has done well over the past year, but can they keep it up?
CAPS member rudeman2k believes Flotek, at least, will maintain its momentum: "With Industry investing money again in infrastructure I think this momemtum play could soar." And ttonk2 is similarly optimistic about Tibco, arguing that the stock should "outperform mkt during 2011" and that it's "probably a canidate for takeover." But there's another stock on this list that our CAPS members like even better.
The bull case for MAKO Surgical
The first Fool to make a case for MAKO was our very own TMFBreakerJava, who wrote back in 2008: "MAKO has a device that is used for minimally invasive surgery on the knee, resulting in reduced trauma, greater success, and fast recovery times. Seems like a good bet as the number of aging knees is booming these days."
CAPS member DocMonsta chimes in: "MAKO's products will revolutionize knee replacement surgery going forward. Eventually, hip surgery as well." And DanielSparks remarks that in many ways, MAKO "looks just like Intuitive Surgical
What to make of MAKO?
And I think I see why. Like Intuitive, MAKO's big on robots. Like Intuitive, it's aiming at reducing the invasiveness of surgery and improving recovery times for patients. But there is one big difference between MAKO and Intuitive: MAKO's not profitable. Intuitive is.
In fact, Intuitive Surgical has been profitable since even before we first recommended it to Motley Fool Rule Breakers members back in 2005 -- and it has steadily grown in both profitability and free cash flow nearly every year since. In contrast, MAKO has more in common with some of the Fool's less successful -- and unprofitable -- medical-device ideas of years past, such as MELA Sciences
As I described in a column last month, there are plenty of reasons to believe MAKO may follow in Intuitive's footsteps, in terms of reduced cash burn, minimal capex spending, and strong revenue growth. But there are also reasons to be cautious: "Reduced" cash burn means MAKO's still burning, and as strong as revenue growth has been, the 30% growth rate posted last year was a far cry from the tenfold sales growth of 2009.
I'm a timid Fool and do not intend to invest in MAKO until I've seen proof positive that it can put together a year of positive free cash flow. But that's just me. Other Fools may prefer to rush into the stock early, in hopes of reaping larger rewards.
Which way do you intend to go? Tell us on Motley Fool CAPS.
Fool contributor Rich Smith does not own (or short) shares of any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 449 out of more than 170,000 members.
Motley Fool newsletter services have recommended buying shares of MAKO Surgical and Intuitive Surgical, and shorting Tibco Software.
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