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 of the Oracle of Omaha's orations, this one holds a special place in Foolish investors' hearts. When you're 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, and buyers' bid prices fall in tandem to create the very price decline that both sides feared in the first place -- until the selling stops.

Until it does, savvy investors can "get greedy" and grab bargains from these fearful sellers -- assuming they 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:

Wall Street may hate these stocks, but on Main Street, investors agree only on one of the five -- and with Goldman Sachs (NYSE: GS) saying that oil's headed for $200 a barrel, you can't blame them for thinking jet-fuel-drinker UAL is poison. In fact, investors seem willing to give most of these Wall Street rejects a pass except for one. Wouldn't you know it? Aladdin Knowledge Systems is a favorite of Motley Fool Hidden Gems as well.

Gems subscribers are well acquainted with our investment thesis on the Israeli digital-rights-management and software-security provider. But why does the rest of Fooldom think Aladdin is magic? Let's find out.

The bull case for Aladdin Knowledge Systems 
CAPS All-Star MJKpayday finds comfort in Aladdin's hidden treasure and calls the balance sheet "healthy."

Perennial CAPS All-Star tenmiles elaborates that Aladdin is "[d]ebt free with nearly 43% of current market cap in cash" and adds that there's "secular growth in authentication markets."

And yet another All-Star, nocemployee, chimed in a few weeks ago to observe that the stock was then hitting its 52-week low.

Granted, since nocemployee endorsed the stock, it had ticked down a bit further -- but that just gives long-term investors a better entry point. I mean, even if you include the nearly $100 million in cash and short-term investments sitting in Aladdin's bank account, the stock trades for less than 16 times trailing earnings, while the consensus of analysts who cover it expect Aladdin's profits to grow at greater than 16% going forward.

Now, tack on the fact that Aladdin generates greater free cash flow than it reports as GAAP earnings, and you wind up with a price-to-free cash flow ratio of less than 12. At the risk of incurring a copyright royalty to Disney (NYSE: DIS), I have to say that makes Aladdin look like a diamond in the rough.

Time to chime in
Of course, the aim of this column isn't to tell you what I think about Aladdin Knowledge Systems -- or even what other CAPS players are saying. We really want to hear your thoughts. Head on over to Motley Fool CAPS, and tell us what you think.

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