"Be fearful when others are greedy and greedy when others are fearful." -- Warren Buffett

Of all the Oracle of Omaha's orations, this one holds a special place in Foolish investors' hearts. When looking to bag a bargain, a panicked sell-off by jittery investors offers you a great chance to snap up stocks on the cheap.

In the short term, professional traders' pessimism can become a self-fulfilling prophecy. Desperate institutions lower their asking prices to get rid of a stock, prompting buyers' bid prices to fall in tandem, creating the very price decline that both sides feared in the first place -- until the selling stops.

Until it does, savvy investors can "get greedy" and snap up bargains from these fearful sellers. (Assuming they really are bargains.) In today's column, we'll see which stocks Wall Street's motivated sellers are most frantic to unload. Once we've compiled this shopping list of potential contrarian picks, we'll check them against the collective intelligence of Motley Fool CAPS.

Today's contenders include:

Currently
Fetching

CAPS Rating
(5 max):

LSB Industries  (AMEX: LXU)

$14.56

*****

Universal Insurance  (AMEX: UVE)

$4.35

****

American Oil & Gas  (AMEX: AEZ)

$3.29

**

Cheniere Energy  (AMEX: LNG)

$19.92

**

National City  (NYSE: NCC)

$8.99

*

Companies are selected from the "Institutional Ownership Down Last Month" list published on MSN Money on the Saturday following close of trading last week. Current pricing also provided by MSN Money on the same date.
CAPS ratings from Motley Fool CAPS.

Well, well, well, what have we here? Seems the much-maligned American Stock Exchange has come into its own this week, with its stocks hogging four of the five slots on today's list. (Sadly, it's a list of stocks that Wall Street hates, but still.)

AMEX also plays home to the highest-rated stock on the list. Geothermal heat pump manufacturer LSB Industries gets the "star" treatment from CAPS investors, who've given it the highest rating permitted by our system -- five stars. To learn how it's earned this constellation of investor approval, let's examine ...

The bull case for LSB Industries
 catbert234 informs us that:

Geothermal heat pumps are 50-70% more effective than oil or gas-fired heating systems and the efficiency of these systems has improved to the point that backup heat source needs are almost a thing of the past. Basically, I've junked the oil-fired furnace in my basement in favor of a geothermal heat pump. In addition to heating my home very comfortably, it also cools it.

Speaking of energy efficiency, CAPS All-Star tenmiles raises another interesting point, calling LSB the: "Leader in geothermal heat pumps - cheap potential call option on 'green' tax credit if the Dems get in."

Fellow All-Star Sillitoe also gravitates to LSB's HVAC operations (note that the company is pretty diversified, also manufacturing chemicals, including nitrates used in fertilizer -- so it's a bit of a Potash (NYSE: POT) lookalike, with a Prius kicker). Says Sillitoe:

The sexy bit is a technology that gets solar energy stored in ground.12 mnth backlog of orders will see it through any U.S. recession.

Finally, hattyr is gambling on a three-word buy thesis: "ge to pursue?"

I dunno, hattyr. Is this company one that General Electric (NYSE: GE) would want? Let's crunch some numbers: LSB stock carries an 8 P/E -- half of what GE commands. But its price-to-book ratio is higher, its operating margin lower, and it's expected to grow slower than the industrial behemoth that is GE.

Maybe GE and its famed efficiency could do more with LSB's assets than current management has been able to. But on their face, the numbers don't make LSB look like much of a buyout target -- and I certainly wouldn't make the hope for a merger the crux of a "buy" argument on this one.

Now, that's not to say that LSB is "bad" per se. (Just not as good as GE.) To the contrary, LSB's cash flow has exploded in recent years. Free cash flow is not yet up to par with GAAP earnings, granted. But further growth in operating cash flow could close and flip that gap in short order, as LSB doesn't seem to need to make a lot of extra capital expenditures to keep its cash flow growing.

I see real potential for this company becoming a cash cow in years to come. Buying now, when Wall Street is selling, seems like both the contrarian and the Foolish (in the good sense) bet.

Time to chime in
Of course, the aim of this column isn't just to tell you what I think about LSB Industries -- or even what other CAPS players are saying. We really want to hear your thoughts. Click on over to Motley Fool CAPS and tell us what you think.

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