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:

Currently Fetching

CAPS Rating

Cherokee  (NASDAQ:CHKE)

$36.54

*****

Force Protection (NASDAQ:FRPT)

$20.64

***

ESCO Technologies  (NYSE:ESE)

$36.26

**

Benihana (NASDAQ:BNHN)

$20.11

**

Openwave (NASDAQ:OPWV)

$6.26

**

RCN (NASDAQ:RCNI)

$18.79

*

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

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). This week, investors believe they have found a steal of a deal in the stock of trademark licensor Cherokee Inc.

Lagging the market by more than 32 points over the past 52 weeks, Wall Street seems to expect Cherokee to suffer from the retail slowdown in the U.S. CAPS investors, in contrast, just can't resist this firm's ultra-lite business model and superb margins. Grossing 100% profits on every sale? You literally can't get better than that. Let's listen in on what our Foolish All-Star investors have to say about Cherokee:

The bull case for Cherokee

  • TheGarcipian introduces us to the company. Cherokee is "not exactly a clothing maker, but a clothing licensor. It owns or represents trademarks for name labels such as Cherokee, Sideout, Saint Tropez-West, Carole Little, Chorus Line, and All That Jazz. You've seen their end results in Target stores, I know you have. And when it's not licensing its own brands, it's helping other companies license their products. It's got Z-E-R-O debt (absolutely love that for a clothier) and a healthy 17% owned by insiders."
  • bmedenwald adds that the company "pays a good dividend, and is well positioned in a boring market with lots of room to grow. It has no debt, an excellent profit margin, and considering it's growth, a relatively low P/E. Looks bueno."
  • billyhall agrees that Cherokee is "a dividend play," adding, "insider buys helped me take a chance w/ this one."

Never having looked at the company before, Yours Fool-y likes what he sees in Cherokee. The company is an IP warehouse. It buys up clothing, footwear, and accessory brands -- then lets someone else do the work of making and selling the merchandise. Cherokee's role in the process is almost literally to do nothing but sit back and cash the checks -- oh, and mail out 8.2% dividend checks to its investors, too.

Time to chime in
That said, the aim of this column isn't just to tell you what I think about Wall Street's rejects -- or even what our All-Stars are saying. We also want to hear what you know about the company. Is Cherokee's sell-off over, or is the firm's alliance with Target (NYSE: TGT  ) destined to choke its growth as retail sales slide? Whatever your thoughts, come on over to CAPS and speak your mind.

Motley Fool CAPS: It's fun, it's free, and it just might make you famous.

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. 790 out of more than 31,000 ranked players. Openwave is a Rule Breakers recommendation. The Fool has a disclosure policy.


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