"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 gives you a great chance to capture stocks on the cheap.
In the short term, professional traders' pessimism can become a self-fulfilling prophecy. When desperate institutions lower their asking prices to get rid of a stock, buyers' bid prices fall in tandem and 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 -- assuming they really are bargains -- from these fearful sellers. 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 picks, we'll check them against the collective intelligence of Motley Fool CAPS.
Today's contenders include:
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Stock
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Recent Price
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CAPS Rating (5 Max):
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ENGlobal (Nasdaq: ENG )
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$4.39
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*****
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Liberty Media Interactive (Nasdaq: LINTA )
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$4.88
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*****
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Temple-Inland (NYSE: TIN )
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$5.93
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*****
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Teck Cominco (NYSE: TCK )
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$9.81
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*****
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Parexel International (Nasdaq: PRXL )
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$10.40
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*****
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Companies are selected from the "Institutional Ownership Down Last Month" list published on MSN Money on the Saturday following close of trading last week. Recent price from Yahoo! Finance. CAPS ratings from Motley Fool CAPS.
Wall Street has been selling these stocks with abandon, but who's taking the other side of the trade? Why, it's none other than … us!
Professional stock pickers may fear to tread here, but Fools don't hesitate to rush into these five-star stocks. And in at least one case, Wall Street's sell-off does seem to present us a compelling bargain. But is it compelling enough to convince you? Let's find out, as we delve into ...
The bull case for Liberty Media Interactive
Buy one, get (parts of) two free! In addition to running its flagship QVC televised shopping network, Liberty Media owns interests in Expedia (Nasdaq: EXPE ) and IAC (Nasdaq: IACI ) . But as much as Fools love freebies, it's the parent company that CAPS members focus on.
In chelstad's case, management confidence elicited a bullish CAPS pronouncement back in January: "Heavy insider buys, let's see if it pays off in the next few months."
But did those insiders know what they were about? I'm not so sure. HSCGrad delivered the following backhanded compliment in 2007:
This is such a lock for a veritable coinery that prints its own money, it is ridiculous. Cavemen could make this work. God forbid some actually savvy business men at the helm.
Writing in April 2007, CAPS All-Star hirshey seemed to agree with at least half of that sentiment:
Company has twice as much free cash flow compared to the industry average. … Double digit revenue and earnings growth should continue for the near future with rising online TV and internet entertainment ventures and subscribers. Good current and Debt-to-Equity ratios.
I was at first inclined to agree with hirshey. With $455 million in trailing-12-month free cash flow, Liberty seems a fine specimen of a moola cow. Throw in a price-to-earnings ratio that looks nigh-on ridiculous -- six-times earnings for a 13% grower, really? -- and I was feeling pretty optimistic about Liberty's prospects as an investment.
But that feeling didn't outlast my review of Liberty's balance sheet, which shows a hefty slug of long-term debt -- $7.6 billion worth -- boosting the company's enterprise value up to nearly $10 billion. The resulting enterprise value-to-free cash flow ratio exceeds 21 times, and to my mind, it is not justified by the company's projected growth rate. Call me a coward if you want, but I fear that Wall Street is right to avoid this stock.
Time to chime in
Of course, the aim of this column isn't just to tell you what I think about Liberty Media Interactive -- or even what other CAPS players are saying. We want to hear your thoughts. Head on over to Motley Fool CAPS, and tell us what you think.
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