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, 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.

Before 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 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.

So what's giving Wall Street the willies this week? Solar power stocks, more than anything else, it seems. But also retail ... and gambling. (But isn't gambling addictive, and therefore "recession-proof"? If you've been wondering whether the market's recent sell-off smacks just a wee bit of the irrational, I suspect you've found your evidence.)

Speaking of irrational, while I see valid valuation arguments against buying several of the stocks on today's list, I see no reason whatsoever not to own one of them. Want to guess which one? I think you'll find a clue as we examine...

The bull case for Mosaic
GR8ness introduced us to Mosaic in May as:

the most profitable company out of the entire group of agricultural chemical stocks. Its growth has exceeded the likes of the competitors [PotashCorp (NYSE:POT) and Agrium (NYSE:AGU)]. ... With new high prices on the agricultural chemicals the outlook should be great for the upcoming quarters.

TheBiggestD added recently that Mosaic currently controls:

15% of the market for phosphate fertilizers. ... the big-picture trends are still in place ... Growth in China and India, for example, will continue to support rising incomes in those countries. ... A near-term positive is that grain inventories are low, about 16% of usage compared with a historical average of around 25%, Citigroup analyst Brian Yu says.

Finally, yooperking pointed out just last week that Mosaic is currently:

Trading below its 2009 estimated sales per share, this former high flyer is now reasonably priced. Regardless of the global financial crisis ... the people of the world still have to eat, and this company's products are essential for food producers.

But forget about the sales multiple. Anyone can sell stuff. We want to own companies that can earn profits from selling stuff -- and preferably, the kind of cash profits that crinkle when you pile 'em up and roll around in 'em. 

Fortunately, Mosaic has those in abundance. The company generated $2.2 billion in free cash flow over the past four reported quarters. Based on its market cap alone -- without even considering the $700 million in net cash on its balance sheet -- that values the company at a mere six times its trailing free cash flow. With fertilizer prices already sky-high, growth at the company isn't expected to match the 100%-plus rates it's been posting in recent years. But even the 9% annual growth that analysts do expect from Mosaic seems doable, at the least.

Time to chime in
Of course, the aim of this column isn't just to tell you what I think about Mosaic -- or even what other CAPS players are saying. We want to hear your thoughts. Head on over to Motley Fool CAPS, and tell us what you think.

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