Fearful Stocks for Greedy Investors

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"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:

Stock	Recent Price	CAPS Rating (out of 5 stars)
MercadoLibre (Nasdaq: MELI)	$22.74	****
Zumiez (Nasdaq: ZUMZ)	$9.25	****
Calgon Carbon Corp (NYSE: CCC)	$11.90	****
Pulte Homes (NYSE: PHM)	$8.67	*
DR Horton  (NYSE: DHI)	$9.25	*

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.

Up on Wall Street, the investment bankers are dropping these stocks like the proverbial hot potato. And when it comes to the housing stocks -- Pulte and D.R. Horton -- Fools aren't too eager to be burned, either.

Still, three of the stocks on today's list get high marks. The Fool's even recommended two of them: Zumiez has long been endorsed by Motley Fool Hidden Gems, while MercadoLibre got the nod from Motley Fool Rule Breakers back in March. I've been meaning to give that latter pick a closer look myself, in fact. So without further ado...

The bull case for MercadoLibre
Who is MercadoLibre? CAPS All-Star kkconway calls it "the Latin version of eBay (Nasdaq: EBAY) or Amazon.com (Nasdaq: AMZN), except early entry and still cheap -- in the value sense. Wait a year or two, & it could easily be a multi-bagger."

Sound good? It gets better. dvena does a little more name-dropping in MercadoLibre's defense: 

[MercadoLibre] is the Craig's List, eBay, Amazon and PayPal of Latin America all rolled up in one. They are the number one or number two provider in most of the countries they serve. Latin America's Internet usage is growing, but has a long way to go to catch up with the percentage of Internet users in the US.

I think dvena means that as a compliment, by the way. There's a lot of growth in MercadoLibre's future, as South America gets busy with its catching-up. However, as KayakerRW explained last year, such growth: 

... won't be steady, and there may be some drops along the way, but over time, it should go up. With an increasing middle class in Latin America, Internet sales should take off. Plus there are several Central and South American countries being touted as good places to retire, so Internet-savvy Baby Boomers may end up using it's services as well when they retire down there.

Granted, at today's price, MercadoLibre looks anything but cheap -- at first. Dig a little deeper, and you'll see that the "E" in its P/E is a GAAP number that grossly understates the true free cash flow of MercadoLibre's asset-light business model.

Free cash for the past 12 months came to $46.7 million, or more than twice the "net income" that GAAP standards allow MercadoLibre to report. Thus, when I look at MercadoLibre, I see less a "46 P/E stock" and more a company selling for 21 times free cash flow. If analysts are anywhere near right about the firm's 35% annualized five-year earnings growth, this stock is an absolute steal of a deal.

Foolish takeaway
Of course, the aim of this column isn't just to tell you what I think about MercadoLibre -- or even what other CAPS players are saying. We really want to hear your thoughts. Click on over to Motley Fool CAPS and tell us what you think.

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