"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:
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Companies
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Recent Price
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CAPS Rating (out of 5)
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JA Solar (Nasdaq: JASO )
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$4.66
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*****
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Republic Airways (Nasdaq: RJET )
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$5.00
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***
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MetroPCS (NYSE: PCS )
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$5.93
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***
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Echelon Corporation (Nasdaq: ELON )
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$8.47
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***
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Mercadolibre (Nasdaq: MELI )
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$38.49
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***
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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.
One potato, two potato, hot potato
Wall Street's treating these stocks like a hot potato, passing 'em around and fearing to hold 'em when the music dies down. Meanwhile, down here on Main Street, it looks like Fools aren't overly enthused either -- except in one case.
The bull case for JA Solar
What's to like about JA Solar? Back in September, CAPS All-Star jschroeds88 called this stock "a long term bet," but "a solid investment. ... Solar cells are very cheap now>increases demand>decreases inventories>increases price>increases profit."
So essentially, jschroeds88 is making the cyclical argument that low prices naturally spur demand, sales, and ultimately -- profit. Meanwhile, other Fools cite the "China changes everything" theory of investing. Even if buyers don't come to the same conclusion on their own, ablengata believes JA Solar has a future. Why? Because: "Chinese solar companies, and increasing solar subsidies throughout the world ... sounds like a plan for success to me!"
Fools of a feather
Nor are these CAPS members the only folks talking up JA Solar lately. In his weekly column on the solar industry, fellow Fool Toby Shute informed us Friday that "JA Solar picked up a new CEO this week. Peng Fang joins the company from Best Solar, LDK Solar's (NYSE: LDK ) thin-film cousin, and also has a management background at companies including NEC and Advanced Micro Devices (NYSE: AMD ) . He seems to have some serious credibility."
Beware the Fang ...
And really, how cool a name is that for a CEO? If you want to keep the worker bees humming, just warn 'em: Better make your quota, or Mr. Fang'll getcha! But even if Mr. Fang combines the motivational tools of Darth Vader with the financial acumen of Warren Buffett, the star power of Barack Obama and the sheer smarts of Albert Einstein, he'd still have his work cut out for him trying to turn JA Solar around.
Although management insists 2009 was a banner year for its business, and that 2010 will be even better thanks to "robust orders from existing customers and new customer wins," they seem exceedingly reticent about giving numbers to back up their optimism. This company rarely mentions its cash flow performance, and even when it does (last quarter for instance), as soon as the subject turns to the capital outlays needed to keep the business going, the company goes silent.
... and beware the company as well
According to JA Solar, operating cash flow for the past two quarters has totaled $71 million, and if we run-rate that out to cover the whole year, we might hypothesize $142 million in cash flow for 2009. Problem is, JA Solar spent $118 million on capital expenditures in 2008, and such capital spending has been rising steadily for years. In this Fool's view, even if the company winds up operating cashflow-positive for the year, it would be highly unlikely to come out free cash flow positive.
Meanwhile, lacking the wherewithal to support its business by, you know, actually profitably selling stuff, the company continues to keep the factories running by selling its own shares. With the share count up more than 100% over the last three years, early investors in this company have already seen their stake in JA Solar's business cut in half.
Time to chime in
Is it "different this time," though? Will a new CEO change everything at JA Solar, and produce the beaucoup profit that CAPS investors hope to see? Personally, I have my doubts -- but I'm willing to be convinced.
If you see a bright future for JA Solar, here's your chance to tell us why. Click over to Motley Fool CAPS now, and enlighten us.
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