"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 since the beginning of this year, and just might be ripe to fall back to Earth.



Recent Price

CAPS Rating
(out of 5):

Flowserve  (NYSE:FLS)



Goldman Sachs  (NYSE:GS)



Morgan Stanley  (NYSE:MS)



Oshkosh  (NYSE:OSK)



Whole Foods  (NASDAQ:WFMI)



Companies are selected by screening on finviz.com for 100% and higher price appreciation year to date.
Current pricing provided by Yahoo! Finance. CAPS ratings from Motley Fool CAPS.

Each of these stocks has posted huge gains this year, but if you ask our 140,000-member CAPS community, it'll tell you that all the gains to be had are already taken. So is now the time to collect our 100% profits and go home? In many cases, yes. But in one case, no. Read on and find out all about ...

The bull case for Flowserve

  • CAPS All-Star WhiskeyGirl admits that Flowserve: "might be a boring pick but you have to love the opportunities that global infrastructural spending will create for this company in the longer term. They've been subtly moving toward water with the acquisition of Calder and remain well diversified across a range of sectors; gas, oil, nuclear, chemicals."
  • MCCracker1 agrees, arguing that: "most of the world needs water and oil infrasctructure investments. This company provides the pumps and parts for this infrastructure."
  • KnockoutMouse adds that: "This water infrastructure company has got a terrific backlog of work that should sustain it in the near term. It is very well managed and scores a ROE above 30%."

So if I had to boil down the bull thesis on Flowserve into just one word, what might that word be? Gee ... Hmm ... "Infrastructure," maybe?

Do ya think?
That does seem to be the common theme flowing through the arguments for Flowserve. And it's hard to argue with the point -- from overloaded highways to crumbling bridges to fresh water reserves that dwindle by the day, it's clear our nation has a lot of infrastructure work that needs doing.

Recognizing the need, companies from tiny Mueller Water (NYSE:MWA) to mammoth General Electric (NYSE:GE) hope to cash in. If these companies think they can profit from water, why shouldn't Flowserve dip into the pot, too?

Indeed, it just might. But the more important fact here is that you won't -- at least, not by buying Flowserve today. The company simply costs too much. Whatever its prospects for profit from a surge in infrastructure spending, they're more than priced into this stock already.

Now, I admit that at a price-to-earnings ratio (P/E) of less than 14, and paying a tidy 1% dividend, Flowserve doesn't look terribly expensive on the surface. Dig a little deeper into the story, though, and you'll find that:

  • The balance sheet isn't all that hot, showing significantly more debt than cash.
  • On the cash flow statement, we find Flowserve's reported net income of more than $430 million backed up by barely $350 million in free cash flow.
  • Last and most importantly, whether you value this company on its reported earnings (the aforementioned 14 P/E) or its actual cash flow (the price-to-free cash flow ratio here is closer to 17), neither of these valuations is supported by its growth prospects.

Investors' hopes and dreams for an infrastructure boom notwithstanding, the analysts following this stock agree that Flowserve will post only 2% long-term profits growth.

Foolish takeaway
To my mind, that's way too low a growth rate to support the current stock price. I very much fear that, absent an absolute blockbuster of an earnings report next week, Flowserve is fated to fall.

Disagree? Feel free. Here at the Fool, we're open to all opinions on the stocks we discuss -- and we'd love to hear yours.

Whole Foods Market is a Motley Fool Stock Advisor pick.

Fool contributor Rich Smith does not own shares of any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 756 out of more than 140,000 members. The Fool has a disclosure policy.