"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 the following:
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Company
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Recent Price
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CAPS Rating (5 stars max.)
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Actuant (NYSE: ATU )
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$8.38
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*****
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Ship Finance International (NYSE: SFL )
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$4.98
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****
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LDK Solar (NYSE: LDK )
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$4.55
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***
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Owens Corning (NYSE: OC )
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$6.99
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***
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|
Psychiatric Solutions
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$15.35
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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 provided by Yahoo! Finance. CAPS ratings from Motley Fool CAPS.
Wall Street's hotshots are selling these stocks hand over fist, but CAPS members caution: "Not so fast, Tex." We're still on the fence about a lot of these companies. Not overly excited, to be sure; but not convinced they're total dogs, either.
Actually, check that. There is one stock that investors are pretty excited about -- and truth be told, we like it, too. Five-star-rated Actuant is a Motley Fool Hidden Gems recommendation. Let's find out how it earned those stars, as we review ...
The bull case for Actuant
CAPS All-Star spiritof78 introduced us to Actuant back in April 2007 as "a problem solving company that ... makes other companies more profitable and has been doing so, with much sucess, for the past five years."
But what exactly does it do, you ask? KenN513 provided us a little more detail in August: "This company produces industrial equipment and supplies for worldwide consumption. The US Dollar is weak, so their products are cheap overseas."
Need even more detail? Another CAPS All-Star, Somnambulo, is happy to oblige. Writing back in May 2007:
'Supplies and Engineered Solutions' is an insufficient description. They make tools, hydraulic stuff, terminals, transformers, LEDs, monitors-all kinds of stuff that is needed. That's why retail is so much harder-you don't need to buy that shirt at Gap, but the things sold by a company like this are unsexy but necessary.
Now, I know what you're going to say. "All that's well and good, Rich, but are you seriously suggesting that we invest in a debt-laden industrial equipment maker in the middle of a recession?"
Yes, if the price is right. With Actuant, it is. Despite analyst expectations of 14% five-year profit growth, this stock still sells for just five times reported earnings.
What's more, Actuant actually generates more free cash flow than it reports as earnings under GAAP. Over the past four quarters, free cash flow amounted to just less than $111 million. Even using its enterprise value, the company still trades for barely 10 times its free cash flow. Not bad at all for a 14% grower with Actuant's blue-chip customer list. Its products are in demand at retailers such as Wal-Mart (NYSE: WMT ) , high-tech companies like Applied Materials (Nasdaq: AMAT ) , and even at the biggest industrialist on the planet, General Electric (NYSE: GE ) .
Time to chime in
The price looks right. The growth looks good. The client list is impeccable. There's your bull thesis for Actuant.
But what's the counterpoint to all this optimism? Surely there's someone out there in Fooldom with a pin (or a pen) sharp enough to poke a few holes in these arguments. CAPS is the place to make your bearish case.
Motley Fool CAPS: It's fun, it's free, and it just might make you famous.
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