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 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 -- and whether you should buy 'em:

Companies are selected from the "Institutional Ownership Down Last Month" list published on MSN Money after close of trading on Friday. Recent price provided by Yahoo! Finance. CAPS ratings from Motley Fool CAPS.

Wall Street vs. Main Street
Up on Wall Street, the pinstripe-and-wingtip crowd can't sell these stocks fast enough. And down here on Main Street, we're pretty much in agreement -- on most of 'em. It seems Fools aren't particularly enamoured of profitless (or nearly so), whiz-bang network and biotech stocks. What we do like is ... profitless sofa manufacturers?

Huh?

The bull case for Natuzzi
If the investor disconnect here has you scratching your head in bemusement, pull up a couch cushion, sit down and consider what our investor community is saying about Natuzzi. First up,

CAPS member EclecticRecluse, who likes Natuzzi's "Low Price" and the "High Professional Opinion" of this stock on Wall Street. The Fool's own TMFBreakerCharly sees a potential of "100% upside just to get the company back to tangible book value, a lot of which is cash."

But perhaps the most telling comment is the one dejonese posted a couple of years back: "Natuzzi's not much different than other furniture producers, except for the fact they almost carry no debt. ... Definitely will suffer for a year or two, but waiting to see it explode as tastes for quality European furniture, spas and accessories reawaken (of course they will)."

Rich Corinthian leather
Now, I don't know about tastes for European furniture per se... but over the past couple months we've seen a definite revival of interest in furniture, period. Just last week, Bassett Furniture announced that it would spool up one of its previously shuttered upholstered furniture plants here in the U.S. And last month, The Wall Street Journal noted "evidence of a turnaround" in furniture sales in the U.S., sparking quick turnarounds in the stock prices at rival companies such as Ethan Allen (NYSE: ETH), Haverty (NYSE: HVT), and Hooker Furniture.

Higher-profile home goods retailers such as Lowe's, Home Depot (NYSE: HD), and Bed, Bath & Beyond (Nasdaq: BBBY) are all outperforming the S&P handsomely over the last couple months. But their gains positively pale in comparison to the run-up we've seen at Natuzzi, whose shares have gained more than 30% since their lows of February, and nearly quadrupled over the last 12 months. The question today is: Where to from here? Are there more gains in store?

Personally, I cannot help but believe they are. I mean, consider TMFBreakerCharly's note: "100% upside." Shares of Natuzzi currently sell for just 0.6 times their tangible book value. Out of a market cap of under $250 million, this company has nearly $80 million in net cash. I just have to believe their other assets are worth some-thing to some-one.

But even if they aren't, even if no opportunistic acquirer appears to buy Natuzzi in its entirety, the business looks just fine to me as a going concern. Last year, Natuzzi generated more than $32 million in free cash flow -- again, on a market cap of less than $250 million. That makes for a price-to-free cash flow ratio of just 8, and an enterprise value-to-free cash flow ratio of roughly 5.

Foolish takeaway
Will the Great Recession end tomorrow? Will Italy avoid Greece's fate, and all that entails for companies like Natuzzi, which are so unfortunate as to be situated within 'em? I honestly do not know. But with a margin of safety as big as Natuzzi offers us, I'm content to sit a spell and wait. I'm as certain as certain can be that eventually we'll lift up the cushions at Natuzzi, and find this furniture maker stuffed full o' profits.

Of course, that's just my opinion. If you've got a different one ... please share.

On Motley Fool CAPS.