In today's market, buying a rocket stock just before it takes a nosedive is every investor's worst nightmare.

Finviz.com publishes a daily list of stocks whose shares have just hit new 52-week highs. Every day, investors read the list and tremble -- some with greed, others with terror. Within our Motley Fool CAPS investing community, these top stocks generally enjoy favorable ratings, since everyone loves a winner. But not always:

Company

52-Week Low

Recent Price

CAPS Rating
(out of 5)

Oracle (Nasdaq: ORCL)

$21.24

$35.96

****

PPL Corporation (NYSE: PPL)

$23.75

$27.43

****

US Bancorp (NYSE: USB)

$20.44

$25.82

****

Linn Energy (Nasdaq: LINE)

$12.60

$40.38

****

Sprint Nextel (NYSE: S)

$3.70

$5.18

**

Companies selected by screening for new 52-week highs hit on the Friday before publication. Low and recent price provided by Yahoo! Finance. CAPS ratings from Motley Fool CAPS.

When a stock hits a new 52-week high, it's only natural to wonder whether its next step will be the proverbial "doozy." No company is perfect, so there's always at least a chance of a misstep. Look hard enough, and you can find a flaw in any stock:

  • Oracle, at 24 times earnings, looks overpriced relative to its growth rate. It carries a P/E twice that of Microsoft, and sells for a P/S ratio nearly twice the industry average.
  • PPL bears a weighty debt load, earns gross margins below the industry average for utilities, and is expected to post negative earnings growth over the next five years.
  • US Bancorp shares have underperformed the S&P badly over the past year. Despite this lackluster performance, its P/E ratio shows it to be more expensive than other megabanks such as Wells Fargo, and JPMorgan.
  • Linn Energy, in contrast, has no P/E. To get one, it will need to earn a full year's GAAP profit -- something Linn has been unable to do since 2008.

Yet Fools on balance find more positives than negatives at these companies, each of which enjoys an above average four-star rating on CAPS. The only stock on today's list that fails to win investors' support is two-starred Sprint Nextel. Why? Let me count the ways:

The bear case against Sprint Nextel
CAPS member mrkhan1024 doesn't quite know "where to start... Miles behind Verizon (NYSE: VZ) and AT&T (NYSE: T) in supported phone technology, network is pretty much restricted to interstates and major metro areas, hasn't turned a profit in something like 4 years."

As CAPS member icu81mi quipped last year: "Last I checked companies were supposed to MAKE money. Underperforming assets, too many promises, and not enough results."

Finally, JMRiv1986 adds that Sprint isn't just worst-in-class, it's also the:

Smallest 'major' cell phone company in the US ... which should put them at an even bigger disadvantage when it comes to pricing power. [Verizon] said they have no interest in buying them. Even if they did I highly doubt the US government would allow the merger because there would only be two legitimate cell phone companies in the US then, and the US government does not like duopolies.

All of which is true. All of which are good reasons to sell Sprint. In fact, while I can think of dozens of reasons not to own this company. (For example, has anyone mentioned yet that unlike Verizon and AT&T, Sprint pays no dividend whatsoever?) In contrast, I can only think of one reason to buy it. But it's a doozy: Cash flow.

Free cash flow, that is. Despite reporting $3 billion in GAAP losses over the past year, Sprint has actually generated more than $2.5 billion in free cash flow. That's enough cash to pay off the firm's gigantic debt load in just six years' time, even if free cash flow grows not at all. And in fact, it's expected to grow at nearly 4.5% per year over the next five years.

Time to chime in
Mind you, I'm not saying Sprint Nextel is worth buying. I'm just pointing out that if it's true "no company is perfect," it's also true that no company is perfectly awful, either. Not even Sprint.

What do you think of Sprint's prospects? Tell us on Motley Fool CAPS.

Rich Smith does not own shares of any company named above, but he is short Under Armour through put options. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 601 out of more than 170,000 members. The Motley Fool has a disclosure policy.

Microsoft and AT&T are Motley Fool Inside Value selections. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool owns shares of JPMorgan Chase, Microsoft, Oracle, and Wells Fargo. Alpha Newsletter Account, LLC owns shares of Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.