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 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, and buyers' bid prices 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 Thursday. Recent price provided by Yahoo! Finance. CAPS ratings from Motley Fool CAPS.

"People got to eat"
Since eating is never going out of style, you might think these three stocks would be among the safest long-term bets on the planet. Then again, perhaps Wall Street traders are more used to dining on Cristal and caviar, and no longer consider sugar, milk, and chicken to qualify as "food"?

Whatever the reason for Wall Street's holding its nose and tapping the sell button, many Fools still find these stocks to their taste. Take Imperial Sugar. CAPS All-Star and fellow Fool TMFDeej highlights the following facts:

Imperial's hedging losses are theoretically a one-time event. Sugar prices should theoretically eventually improve. The company's new plant is now operating much closer to full capacity.

That all has TMFDeej thinking "the company's problems seem fixable," and that it's not nearly the basket case Wall Street says it is.

Or consider Dean Foods. Like Imperial Sugar, Dean recently served up investors a batch of bad news, pulling its 2010 earnings outlook on fears that it's getting caught in a margin squeeze. Regardless, All-Star investor AlbertaBorn reminds us that Dean has "more than enough cash flow to cover [its debt payments] for now," suggesting that a recovery is at least possible.

Why, even one-star-rated, nearly-universally-hated Pilgrim's Pride has its supporters. CAPS All-Star creek138 believes that because "feed prices [have] dropped and credit market unfroze," the company's likely to rebound. "People will continue to consume cheap meat," creek138 adds.

"You are what you eat"
That said, there's no need for us to eat every investing opportunity set before us. In investing, as in dining, it's sometimes prudent to be picky. And this, Fools, is why I must side with Wall Street today. After reviewing all three of these companies carefully, I'm of the opinion that none of them is the best place to put your money today.

Why not? The reasons vary. With Imperial Sugar, it's the company's profound lack of cash flow that takes me aback. Over the past 12 months, Imperial burned through nearly $249 million. And while history shows that the company does sometimes generate cash, its current, precarious cash position tells me that this one's just too risky to bet on.

Pilgrim's Pride and Dean look like better bets … just not good bets. The $273 million in free cash flow Dean produced over the past 12 months seems sufficient to justify its $2 billion market cap. Problem is, that market cap doesn't take into account the $4.2 billion in net debt on the balance sheet. Factor that into the equation, and we're looking at an enterprise value of nearly 23 times free cash flow -- too much to pay, in my view, for the mere 9% long-term grower that is Dean.

Similarly, Pilgrim's Pride generates plenty of free cash. Still, I calculate a multiple of 13 on the stock and, again, only a 9% growth rate. Contrary to what its one-star rating on CAPS suggests, the stock may actually be the most reasonably priced of the three -- but that still doesn't make it cheap enough to own.

What now, Fool?
To my Foolish eye, none of these stocks is priced at a level encouraging investment -- but I don't want to just say no, and certainly not three times in a row, without giving you a couple of ideas on where else to look for value. In that vein, let me suggest two possible prospects: Companies possessing the inherent stability of a product essential to life itself (food), but trading at more reasonable valuations.

First up, General Mills (NYSE: GIS). Selling for 20 times free cash flow, and more than 15 times earnings, this one might not look like such a great bargain. But it's growing nearly as fast as any of the lower-quality stocks named above, puts out GAAP earnings backed up fully with free cash flow, and pays a tidy 2.6% dividend to boot -- something none of the other contenders can say.

An even better value may be found at Kraft (NYSE: KFT). Warren Buffett famously threw a hissy fit last month over the company's purchase of Cadbury, paring Berkshire Hathaway's (NYSE: BRK-A) (NYSE: BRK-B) stake in the stock -- but to my Foolish eye, you can still spell "value" K-R-A-F-T. With a P/E of less than 11, a monster 4% dividend payout, and respectable growth of nearly 7.5% projected for the next five years, the stock fits neatly within the classic "total return" formula for finding bargains, laid out by investing legend John Neff in his book On Investing. If it can get its free cash flowing at a level more closely approximating reported net income, I think I'd be comfortable investing in it myself.

Time to chime in
But would you? Take a few moments and visit Motley Fool CAPS to tell us whether you would invest in any of these stocks. A full 165,000 of your fellow investors are waiting to hear what you think.