Contrarian Shopping List

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"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 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," 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 the 100,000 investors in Motley Fool CAPS.

Today's contenders:

Of these five, CAPS players rate just one as above average. It seems investors find curing cancer as boring as reading the newspaper, and investing in satellite communication about as risky as subprime mortgage lending.

But human resources? Now that's exciting. Tiny Barrett Business Services has nearly as many fans on CAPS as it has market capitalization. (OK, that's a slight exaggeration -- the market cap sits north of $130 million.) What's all the fuss about? That's what we aim to learn as we examine ...

The bull case for Barrett Business Services

• 21popsontop introduced us to the company back in February. "The company is gaining much respect and becoming a leader in offering a range of human resource management services to help small and medium sized businesses [control] increasing costs among many other problems related to employment [issues] and company problems in the work place. Company is well run by management, growing like grass and already paying a dividend to keep you content while they grow the business for you."
• More recently, though, WizeMoney informed us that, "The stock got hammered after Q1 report and downgrade." Barrett currently trades for 9.2 times trailing earnings, yet still has "loads of cash on the books and a dedicated CEO and the insiders hold 30+% of the stock and as of Nov 07 had authorized 1 mil in share buybacks and I expect to see that manifest itself soon at these prices. Gotta believe a good company like this with a solid bal sheet will bounce back and reward investors."
• And batting clean-up is All-Star CAPS player themattgrdt, who reported in January, "CEO Bill Sherertz told analysts on the last conference call: 'If you guys want to sell [the company] down to five times earnings, maybe I will just buy the whole [expletive] thing.'"

Now, I certainly don't condone a CEO losing his cool on a public conference call. But with that caveat, I certainly see where Sherertz is coming from. Barrett does sell for a remarkably low P/E. An investment in an equivalent share of the earnings of larger rivals Administaff (NYSE: ASF) or Kelly Services (Nasdaq: KELYA) will cost you half-again as much, or more, as Barrett shares fetch.

Sure, Barrett is undergoing some hardship in the current, recessionary environment. But the same analysts whom Barrett's boss blasted predict the company will grow at better than 11% per year going forward. Meanwhile, the company generates more than enough free cash flow -- in excess of $13 million per year in each of the last three years -- to keep itself in business while waiting for the economy to revive.

So could this one bounce? Yes it can.

Time to chime in
Of course, the aim of this column isn't just to tell you what I think about Barrett Business Services, 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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