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 (as you might say they did last week), their grim outlook can become a self-fulfilling prophecy -- at least in the short term. The more desperate institutions become 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 this latest market downdraft will stop is anybody's guess. But until it does, savvy investors have a chance to get greedy and snap up some bargains from fearful sellers (if bargains they truly be). Problem is, investors aren't at all certain that "bargains be" anymore. Investors give below-average marks to every company on today's list, with one exception: LCA-Vision.

And yet, on Tuesday, this supposed outperformer turned in a decidedly underperforming set of Q2 numbers: Same-store sales down 8%. Profits down 3%. Forward guidance slashed 7%. Last week, I summed up the quarter thusly: "Egads, was that ever bad!" Could there really be anything to like about this company?

Apparently so. Let's find out what it is.

The bull case for LCA-Vision

• DSupaSage introduces us to the company: LCA "provides reasonably-priced LASIK procedures for the masses. It has agreements with 3 of the largest eyecare managed providers, which consistently feeds the company new patient leads. With a good slug of cash and a recent reduction in guidance, the stock has been severely punished and should recover given its still-robust growth." (The more things change, the more they stay the same. DSupaSage's comment may sound like it was penned only yesterday -- in fact, he wrote this back in October 2006.)
  
• DatabaseBob offers a similarly dated-yet-still-current analysis: "Minimal debt and a lot of cash on the balance sheet. LCAV is growing the number of LasikPlus vision centers in a measured manner. Growth expectations for Book Value, Revenues, Cash Flow, Earnings and 'Yes, Virginia,' even Dividends are all expected to grow at a 23.5 - 48% pace for the next 3-5 years (as per Value Line). Yet, based on 6 months trailing and 6 months forward earnings estimates, LCAV's PE is around 22.5. You may have some time to study and buy this one - the third and fourth quarters have been the company's weakest in recent years (LCAV is on a calendar fiscal year)." (Pardon me while I repeat myself: Egads! If the third and fourth quarters are indeed LCA's weakest, then based on what we saw happen in Q2, a Fool needs to be aware of the possibility that this one's bounce might be awhile in coming.)
  
• One final caution from Hoglum before we close: "I like this company. Good growth, profits, even a dividend! What's not to like? One thing I can think of. The everlasting gobstopper theory. It seems if you open such a shop only so many people will come in to get their eyes fixed. If they come back, it's probably because something went wrong. ... My advice here: watch same store comparisons closely. It seems they've already had some problems with this. They blame their marketing effort, but a good Fool should keep his/her laser sharp eyes open."

Before you ask -- yes, all three of the comments excerpted above came from CAPS investors who recommend LCA as an investment. Yet the last two seem to have significant worries about the company. Worries that, I should add, were proven well-founded last week.

That said, I just can't help but notice that at its current, post-earnings price, LCA trades for a mere 15 times trailing free cash flow, whereas analysts expect it to grow profits at 20% per year going forward. To me, that sounds like LCA's stock price already has plenty of risk baked into it. I have to admit -- I find the valuation quite compelling here today.

Time to chime in
But 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. Can LCA get back on the growth track? Or are we Foolish optimists turning a blind eye to material defects in its business model? If you've got an opinion, we've got a place to voice it.

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

LCA-Vision is a Stock Advisor recommendation. Find out why with a 30-day free trial of the newsletter.

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. 328 out of nearly 60,000 players. The Fool's disclosure policy has a stylish pair of glasses.