Contrarian Shopping List

"We simply attempt to be fearful when others are greedy and to be greedy only 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 reduce 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 "be greedy," snapping 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:

With four out of these five stocks broadly panned, it seems lay investors are reading from the same page as the professionals this week. But there is one company on which CAPS players differ from the accepted Wisdom -- IRIS International, a maker of in vitro diagnostics systems. If you've ever visited a doctor's office and been asked to pee in a cup, chances are IRIS played a part in the process.

Ewww!
Well, yeah. To succeed in investing, sometimes you've got to get your hands dirty. So with that objective in mind, take a deep breath, and let's splash right into reading ...

The bull case for IRIS International

• mformica introduces us to the company: "Iris International (IRIS) is a medical company that sells both equipment and then supplies for its installed base (so as the installed base grows, the supplies business grows too)."
• One of the great things about CAPS is, at 85,000 investors strong and growing, we're bound to have some members who can offer firsthand experience on the companies they "pitch." Take, for example, Bofadem, who praises IRIS: "Steady performance with new products coming on line. ... 1st rate Urine analyzers in the medical labs everywhere. (I am a lab tech and I know this for fact)."
• Or in Impcyz's case, secondhand experience: "Luckily, my wife (plus 3 of our friends) worked there, so I learned a little about the company from the 'inside'. It's a well run company with a large number of 'major (VA, et al)' accounts they deal with." Three of those accounts, I've discovered, are Abbott Labs (NYSE: ABT), IDEXX Labs (Nasdaq: IDXX), and Motley Fool Stock Advisor recommendation LabCorp (NYSE: LH).

So the business sounds good, but what about the price? Unfortunately, it's still a little steep. IRIS sells for 31 times trailing earnings, but is expected to grow its profits at "only" 24% per year over the next five years. That, plus the fact that IRIS generates significantly less free cash flow than it reports as net income, suggests to me that the stock price is not yet low enough to buy.

Time to chime in
Of course, the aim of this column isn't just to tell you what I think about IRIS International -- or even what other CAPS players are saying. We want to hear your thoughts. Do the long-term demographics of the health-care industry justify overpaying a bit today, in order to avoid missing out on profits in the future? Click on over to Motley Fool CAPS and tell us what you think.

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