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 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 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. Buyers' bid prices then 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 snatch 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:

Stock	Recent Price	CAPS Rating (Out of 5):
Eagle Bulk Shipping (Nasdaq: EGLE)	$4.51	****
Western Refining  (NYSE: WNR)	$6.90	****
Coeur d'Alene Mines  (NYSE: CDE)	$11.66	****
Patriot Coal	$5.83	****
Hansen Natural	$30.57	****

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 and CAPS ratings from Motley Fool CAPS.

Professional investors want nothing to do with these stocks anymore, and are tossing 'em overboard. Not so with Fools. Wall Street's reservations notwithstanding, every one of these companies continues to garner praise from our CAPS members.

Which of the five four-star stocks shall we profile today? Well, there seems to be plenty of enthusiasm about dry bulk shippers in recent weeks, so let's check back in and find out if this story still has (sea) legs, as we examine ...

The bull case for Eagle Bulk Shipping

• CAPS All-Star cbwang888 calls Eagle Bulk an "undervalued shipper" and writes, "China wants more coals and iron ores."
• That's the macro argument in Eagle's favor. Fellow All-Star investor Otrex gives us the micro case, based on Eagle's financials, from early last month: "37 cents profit per quarter means at least $1.48 a year in profit. Even with a conservative P/E ratio of 8.5, this is a $12.58 stock. A more fair P/E would be somewhere between 10 and 15 however, so this stock price has a lot of room to go up. Add in the fact that the Baltic Dry Index is rapidly improving, and you can see a huge upside to this sector in general and companies like [Eagle Bulk] in particular."
• And tcuwhit adds: "I like dry shipping and this stock is in [there]. If they had a dividend I would buy a lot more of it."

But it's funny that tcuwhit should mention dividends -- because Eagle Bulk did once have a dividend. Up until last year, the company was paying out a fat $1 per share to its owners -- nearly a 19% yield, or roughly equal to what owners of Excel Maritime (NYSE: EXM) receive, and more than DryShips (Nasdaq: DRYS) pays. But like many shippers these days -- Genco (NYSE: GNK) and Diana (NYSE: DSX), for example -- Eagle had to cut its dividend to conserve cash.

You see, it's true that Eagle Bulk boasts a very low price-to-earnings ratio right now -- it actually sells for less than four times trailing earnings. Yet while many investors are flocking to Eagle and its peers based on their ultra-low price-to-earnings ratios, they may be missing the fact that many of these companies carry a (ahem) boatload of debt.

In Eagle's case, while the stock sells for less than $250 million, the debt load is more than three times that. What's more, it's rising quickly. For at the same time as this company was reporting $155 million in net income over the past four years, Eagle was burning through $1.1 billion in free cash flow, with a bunch of that going toward building out its fleet to service a commodities boom that would never end -- yet somehow, did.

Foolish takeaway
I've said it before, and I'll say it again: Cash-burning companies like Eagle Bulk give me a case of raging hydrophobia.

But that's just my opinion, and truly, the aim of this column isn't to tell you what I think about Eagle Bulk Shipping. We really want to hear what you have to say about the company. Head on over to Motley Fool CAPS, and tell us what you think.