Fearful Stocks for Greedy Investors

"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 picks, we'll check them against the collective intelligence of Motley Fool CAPS.

Today's contenders include:

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 provided by Yahoo! Finance. CAPS ratings from Motley Fool CAPS.

Fear and self-loathing in the Big Apple
And so it appears that if there's one thing our bankers really hate these days, it is ... themselves. Four of the five companies making today's "short" list are banks. As for the fifth -- well, I doubt anyone would object too strongly to including Intercontinental in the financial services club.

Fools don't want to offend by disagreeing, so ... we pretty much pan the lot as well. About the only company on this list CAPS members actually like, it seems, is the banker-with-the-funny-name: Umpqua Holdings. Why is this one not like the others? Let's find out.

The bull case for Umpqua Holdings

• In contrast to its better-known banking brethren, BobSizoo told us back in July that Umpqua has "little exposure to subprime mess. Made some loans to Sacramento-area builders who ran into trouble. Wrote them all down last quarter. Most importantly, I bank there and the tellers are really friendly."
• Friendly's nice. But we're investors here, right? What about profits? CAPS All-Star nonzerosum filled us in on that part of the picture in September: "UMPQ has been lumped together with the bad banks. But judging by its lovely cash flow it is doing well which makes it very cheap. Their loss reserves may be too conservative so we could see a nice reversal in earnings when the recession is over." So! A positive earnings surprise! That would be pleasant. Anything else bullish about Umpqua?
• rivercitytrader thinks there is. Writing in October: "They just watched their number one competitor (WaMu) fall away, leaving the premium retail banking space (at least on the west coast) almost entirely in their hands. Solid organic growth in retail deposits, trading below book value."

Which would certainly be nice for Umpqua if it were true. Problem is, last I heard, WaMu didn't so much "fall away" as get gobbled up by banking behemoth JPMorgan Chase (NYSE:JPM). (About the same time as Wells Fargo (NYSE:WFC) was mopping up Wachovia.) As such, Umpqua's not so much getting free rein on the West Coast as ... acquiring the privilege of going head-to-head with the nation's biggest bank as its archrival. Oh, goody.

As for the rest of the bull thesis, well, I'm hardly a banking expert, but I'll tell you what I do see here. Umpqua is selling for a 10 P/E, and most analysts think it will pull out of this crisis and go on to post something on the order of 12% annual growth over the next half decade. I don't know about you, but that sounds pretty good to me. Also attractive -- the fact that Umpqua is selling for less than half of its book value. If its assets are in as good a shape as our CAPS members seem to think, and if Umpqua can avoid the kinds of serial write downs that seem endemic in the banking sector, then I must say:

Now looks like an excellent time to get greedy over Umpqua Holdings.

Time to chime in
Of course, the aim of this column isn't just to tell you what I think about Umpqua Holdings -- or for that matter, what our CAPS members think. What we really want to know is whether you would bank on the stock. Click on over to Motley Fool CAPS and tell us what you think.

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