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 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, 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.

Wall Street's wizards of finance are unloading these stocks as fast as they can, yet down here on Main Street, we mere mortals see a lot to like on this list -- myself included.

But the more I look at the numbers, the more I think one stock looks way more undervalued than the rest. That's why this week, we're delving down into micro-cap land, and coming up with ...

The bull case for Ampco-Pittsburgh
Have you been searching for a way to invest in the Obama administration's stimulus plan on the cheap? Then look no further, Fool, because it doesn't get much cheaper than Ampco-Pittsburgh. Other investors may prefer to invest directly in steel producers like Nucor (NYSE:NUE) or U.S. Steel (NYSE:X). Ampco-Pittsburgh, in contrast, offers a back door to participate in the recovery plan -- because it makes the forged and cast rolls that other steel companies need to manufacture and process the metal.

I'll grant that heavy industry in general, and steelmaking in particular, aren't looking too healthy right now. Yet some investors -- CAPS All-Star SapphireSeas among them -- see better days ahead. Regarding Ampco-Pittsburgh, SapphireSeas is betting on: "Re-capitalization ahead of recovery in consumption. Many companies likely to invest in new production efficiencies between 2009 - 2011, and this gem should capture some of that business."

Elsewhere, SpinningFree points out that thanks to the weak economy, it's now possible to buy the stock: "at a discount ... with mounds of cash, very little debt and a substantial backlog through 2010 to get through any tough times the industry may have to offer." (Earlier this year, Ampco boasted some "$400 million in orders for delivery beyond the end of 2008.")

What if the stimulus plan doesn't lift U.S. steel producers out of the dumps? reddingrunner pointed out that in that case, AP still "looks like a good, still cheap, backdoor into rising steel demand in emerging markets."

This angle could become important. In fact, fellow Fool Christopher Barker argued this very point back in January, contending that the stimulus plan appears to spend very little on tangible, steel-and-concrete infrastructure projects here in the U.S. In contrast, China is making some truly massive infrastructure investments. So let me not forget to point out that Ampco-Pittsburgh gets more than half of its revenue from foreign sales.

But I haven't told you the best part.

Better and better
While management has not yet provided us a copy of its fourth-quarter cash flow statement, I took the liberty of reviewing the statements it has published for the preceding four quarters. At last report (Sept. 30, 2008), AP had generated about $11 million in free cash flow. At today's stock price, that means the stock is selling for only eight times free cash flow ... and I still haven't told you the best part!

The very best part of this story is found not on the cash flow statement, but on the balance sheet. There, we learn that two-thirds of Ampco-Pittsburgh's market cap comprises cold, hard cash. After accounting for debt, the firm has $67 million in net cash. That cash could come in handy as the firm battens down and prepares to ride out an economic storm of indeterminate duration. It's also sufficient to fund the firm's beefy 6.6% dividend yield for nine full years. (Reassuring news for investors burned by recent dividend cuts at General Electric (NYSE:GE) and JPMorgan Chase (NYSE:JPM), I'll wager.)

Time to chime in
So let's recap here: Ironclad balance sheet? Check. Churning out more cash to keep it that way? Check. Plenty of backlogged work to ensure the cash keeps coming? Last we checked, check. Seems to me it's all systems go for Ampco.

Of course, that's just my opinion. What's yours?