"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.... According to the smart folks at finviz.com, the stocks below 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):

International Coal (NYSE: ICO) $9.02 *****
salesforce.com (NYSE: CRM) $146.47 *
MBIA (NYSE: MBI) $13.08 *           

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.

What does private mortgage insurance have to do with cloud computing? What do either of these things have in common with coal production? The companies behind these products are some of the hottest stocks on the Street.

Over the past year, owners of "PMI" provider MBIA have enjoyed a 142% rise in the value of their investment -- a rise capped last week by a 22% one-day spike on news that a New York state court is on board with the company's plan to restructure itself. Salesforce shareholders have done nearly as well, reaping a tidy 113% profit as the company consistently confounds skeptics regarding its growth prospects in the Cloud. Likewise International Coal investors, who've gained more than 100%. They would have done even better, but for last week's controversial EPA decision to yank a permit at West Virginia's largest "mountaintop removal" coal mine. The ruling blew up IC shares like a load of TNT.

Yet if you ask CAPS members, the higher the prices soar at MBIA and Salesforce, the less interested investors become in buying these pricey shares. Profitless and weighed down by debt, one-star-rated MBIA remains shunned by CAPS members. And with Salesforce priced at far more than 100 times forward earnings, our CAPS community isn't all that enthused about that stock, either.

And then there's International Coal -- which, while much more expensive than it was a year ago, at least costs 5% less than it did on Thursday.

The bull case for International Coal
Why buy International Coal? With170,000-plus people in our CAPS community, a few are bound to possess first-hand knowledge of the companies they rate. So let's start off our review of International Coal with a few words from CAPS member justinkk2005, who confides: "This company is local to me and I can promise you, workers are flocking to it. It's a great company to work for and several people have good things to say about them locally."

It's also growing. CAPS All-Star lbtbernstein tells us that International Coal has "new mines com[ing] online within the next two years. In addition, more coal is metallurgical with higher margins and the utilities are raising their capacity."

And from the big-picture perspective, fellow All-Star investor tmaz argues:

Coal may be dirty but it works, its cheap and its proven. India and China along with other emerging markets will be the largest net consumers of this energy source in the future and through simple economics of supply and demand... will result in profitability in this market. Good numbers on this company, potential buyout as well?

Could a buyout be in the cards for International Coal? At 2.5 times book value, the stock doesn't seem unreasonably priced. That's on par with the valuation at Patriot Coal (NYSE: PCX), and actually cheaper than the P/B valuations at Peabody (NYSE: BTU), Consol Energy (NYSE: CNX), and Massey (NYSE: MEE).

But if International Coal remains independent, how good an investment will it be? Bears will note that at 185 times trailing earnings, the stock's already looking juuuuust a bit on the expensive side.

On the other hand, if you dig a little deeper into International Coal's financials, you'll find:

  • Minimal net debt, in an industry where higher debt loads are the norm.
  • Surprising profits from a cash perspective. Over the last 12 months, International Coal has generated $74 million in free cash flow, or about eight times its reported profits under GAAP.
  • Analyst expectations of 73% annual profit growth over the next five years.

Time to chime in
Personally, I tend to take Wall Street's guesses with a few grains of salt. But still, across the industry, analysts are calling for 19% long-term growth. If International Coal only matches that rate, then its current valuation of nearly 25 times free cash flow looks a little steep to me.

On the other hand, if the company beats expectations (as it's done in three of the past four quarters), and outgrows its peers (as justinkk2005's comment suggests could happen), then maybe this stock still has room to run.

What do you think is the more likely scenario, Fool? Will International Coal give back all the gains it's worked so hard to amass over the past year? Or will that light at the end of the tunnel only glow brighter over time? Join the debate with your fellow investors -- click over to Motley Fool CAPS now, and tell us what you think.

Salesforce.com is a Motley Fool Rule Breakers recommendation, but 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. 712 out of more than 170,000 members. Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.