Contrarian Shopping List

"We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful." -- Warren Buffett

Out of the quadrillions of quotations quarried from that most loquacious of quotationists, this one holds a special place in the hearts of Foolish investors. Are you looking to "buy low" so as to later "sell high?" If so, your best chance of getting that initial, low entry price comes when panicked sellers are unloading their shares at whatever price is on offer.

In today's column, we search the ranks of Wall Street's motivated sellers, and note which stocks they're most frantic to unload. Therein may lie the makings of a contrarian investor's shopping list. But don't just take my word for it. Before you decide to go in through Wall Street's out door, check your thinking against the collective intelligence of Motley Fool CAPS investors.

Today's contenders include:

The problem with pessimism
The problem with going against the grain on Wall Street is that when professional traders get pessimistic, their grim outlook can become a self-fulfilling prophecy -- at least in the short term. The more that institutions become desperate to abandon a stock, the lower the price they'll accept to get rid of it. And as their "ask" prices drop, the "bid" prices of buyers will fall in tandem, creating the very price decline that they feared in the first place.

Until the selling stops.

In through the out door
When it will stop is anybody's guess. But until it does, savvy investors have a chance to "get greedy," and snap up some bargains from these fearful sellers (if bargains they truly be).

In today's list, CAPS players appear to think "they be." Only one of the stocks listed above scores a below-average rating from our community of investors. And at the top of the list, we've got three (count 'em, three) possibilities that get the thumbs-up from CAPS. Exercising executive authority, I choose to devote today's column to business process outsourcer (read "call center operator") PeopleSupport, which answers phones and emails, provides transcription services, and generally handles a lot of U.S. corporate grunt work from the low-labor-cost locale of the Philippines.

Reviewing the company's CAPS page, we see that 135 out of the 143 investors who have rated the company think it's a star, with only one out of 51 All-Stars arguing the contrary. Here's what a few of these super-investors have to say about PeopleSupport:

• dust928 calls PeopleSupport "one of the best niche players in a fast-growing industry," pointing out that it "generates a ton of cash even when heavily investing in facilities. Investments in their own Call Center facilites [sic] will ensure lower cost in the future further expanding EPS."
• PacingGuy seems to agree, but thinks that the best thing about the stock is its price, which "just got slashed in half due to a quarterly miss and several analyst downgrades."
• And about those downgrades ... zyx987 grouses, "Wall Street continues to lose credibility with me. Witness today's price drop of nearly 20% on a Cowen analyst downgrade." Weighed against one analyst's opinion, zyx987 cites the company's 82% increase in Q4 revenues and the fact that the firm is "ramping up head count" as indications that things are improving, and will continue to do so, concluding, "this is a young, vibrant company with excellent prospects ... a very good entry point."

Time to sound off
I must admit -- after reading those comments, I'm starting to get interested in PeopleSupport myself. Despite disappointing analysts with its fourth-quarter earnings and Q1 2007 guidance, the firm is growing its revenues rapidly, already generates free cash flow, and has 41% of its market cap backed up with cash in the bank. Combine these strong fundamentals with a business sitting squarely in the middle of a long-term trend towards outsourcing in an increasingly "flat" world, and PeopleSupport looks like a strong contrarian pick to this Fool.

Am I wrong? Are our All-Star investors wrong, too? If you know of a good reason to sell PeopleSupport, then come on over to Motley Fool CAPS and enlighten us.

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 60 out of roughly 25,000 raters. CV Therapeutics is a Motley Fool Rule Breakers pick. The Fool has a disclosure policy.