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 buy 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 and 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:

Companies are selected based on past-three-month changes in institutional ownership, as reported on finviz.com Monday morning. Recent price provided by Yahoo! Finance. CAPS ratings from Motley Fool CAPS.

Market fear-for-all
According to today's Wall Street Journal, the worst is over, and U.S. stocks are once again trading at pre-S&P downgrade levels. Fitch just confirmed that it's not downgrading the United States (yet). But markets have dipped back into the red regardless. Fear, it seems, is difficult to banish from the market -- but that's OK.

Thanks to Mr. Market's more nervous Nellies, investors now have the chance to buy shares of cash-rich Vistaprint for as low as 15 times earnings, and tiny Chinese ag-play CGA for less than four times earnings. And did I mention China Green Agriculture has half its market cap in cash? Similarly cash-rich Samson has minimal revenues so far but claims nearly 11 billion cubic feet of proven natural gas reserves. Even at today's depressed prices, with natural gas currently going for $4.05 per million BTUs, these assets should be worth about $46 million.

Vantage isn't quite as flush, granted. But the stock costs only 1.2 times sales -- a mere fraction of the P/S ratios accorded to larger drillers Atwood Oceanics (NYSE: ATW) and Transocean (NYSE: RIG), which fetch 4.5 and 2.0 times sales, respectively.

Yet the best bargain of all on today's list may be a little company you've probably never heard of before -- home-based nursing-care provider Almost Family. While CAPS members give only mediocre three-star ratings to most of the stocks on this week's list, Almost Family gets the Fool five-star treatment. Why?

The bull case for Almost Family
CAPS member ipsiety starts us off with a few numbers: "ROE 21% … Cash/Debt $55.46 million / $1.47 million … P/E=8.1."

All-Star investor ChicagoBragger calls Almost Family's return on invested capital "incredible … a true compoinding machine." Our CAPS member continues: "Industry is very fragmented allowing for plenty of room for growth. Balance sheet is very strong. … Enterprise value of ~$135MM on a company that is earning over $30MM annually in an industry with stable and growing demand."

But even granting all that, why is Almost Family so cheap? CAPS member garybeene chalks it up to "healthcare uncertainty" but argues that "this uncertainty offers a very attractive entry point as AFAM provides the best valued product when compared to the costs of hospital beds and retirement facilities."

Right now, Wall Street's wigging out over the implications of Washington's "grand compromise" to curtail government spending earlier this month. As details of the debt-ceiling raise began filtering out, shares of nearly every company associated in any way with Medicare and Medicaid funding dropped sharply, Almost Family included. Yet it looks to me -- and it looks to many investors here in Fooldom -- that this risk has been more than priced into Almost Family's stock already.

Consider: Based on trailing results, A-Fam currently costs less than 7 times earnings. Its strong cash generation gives the company a price-to-free cash flow ratio even lower -- just 5.3 -- and if you back out the company's copious cash reserves, the enterprise value-to-free cash flow ratio on this one drops even further, all the way to 3.9. (No, that's not a typo.)

Foolish final thought
Perhaps even more amazing than the numbers you've seen here is this last one: Even with the likelihood of federal spending cuts, Almost Family is still expected to grow its earnings 14% per year over the next five years. With an EV/FCF of 3.9, and 14% growth, Almost Family is almost too cheap to believe.

Do you believe it? Or do you think there's something we're missing here? Tell us what you think on Motley Fool CAPS.