"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:
|
Company
|
Recent Price
|
CAPS Rating
(out of 5)
|
|
WSP Holdings (NYSE: WH )
|
$4.20
|
*****
|
|
InterDigital (Nasdaq: IDCC )
|
$20.96
|
****
|
|
A-Power Energy Generation (Nasdaq: APWR )
|
$8.22
|
****
|
|
Spartan Motors
|
$5.43
|
****
|
|
JA Solar (Nasdaq: JASO )
|
$3.56
|
****
|
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.
Of hummingbirds and men
I'd say that professional stock traders have the attention span of hummingbirds ... but I wouldn't want to offend ornithologists. Most investors remain firmly confident in these companies' prospects. Wall Street, however, is tossing them out the window. (The companies, not the investors.)
But why? If memory serves, only two months ago, the top stock on this list -- WSP Holdings -- was also topping Wall Street's Buy List. Investors loudly sung its praises:
What's changed since then? What spooked the Street out of its bullish obsession with Chinese oil infrastructure plays?
Two words: "The facts"
In mid-August, WSP reported its second-quarter earnings, and the news was not good. Sales took a 29% hit, and the gross margin was chopped nearly in half. By the time Wall Street had read its way down to the bottom line, it was clear that WSP's net profit had fallen 62%.
Of course, I could have warned them that all was not well at WSP. In fact, I did warn readers in June that "while the company boasts impressive profit ($99 million in 2008) as calculated under GAAP, its free cash flow runs to the negative, to the tune of minus $54 million."
The situation has only gotten worse. Accounts receivable are up, ready-access cash levels are down, while WSP is classifying more funds than ever under the unhelpful classification "restricted." The cash crunch now has WSP management rethinking its capital expansion program "based on the current economic conditions and future expectations," and begging its bankers for "delayed payment terms for certain projects" (successfully, thank goodness).
Foolish takeaway
Not all of this is WSP's fault, of course. Times are tough across the steel industry; here at home, storied names like U.S. Steel (NYSE: X ) , Nucor (NYSE: NUE ) , and AK Steel (NYSE: AKS ) are all reporting revenue declines, but not nearly so awful as WSP's numbers. As always, watch out for steel -- and airlines, while you're at it.
I also admit that WSP has a strong balance sheet, and an almost laughably low trailing P/E of 5. Perhaps that's why the stock enjoys so much support among CAPS members. But from my perspective, until WSP demonstrates that it can make more cash to replenish what it's burning, I cannot endorse the stock.
But perhaps you disagree? Don't be shy -- contrary opinions are welcome on the Fool. Click on over to Motley Fool CAPS now, and tell me why I'm wrong.
Motley Fool CAPS: It's fun, it's free, and it just might make you famous.
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