"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. 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:
|
Stock
|
Recent Price
|
CAPS Rating
(out of 5)
|
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General Steel (NYSE: GSI )
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$3.95
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*****
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|
Energy Conversion Devices (Nasdaq: ENER )
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$10.41
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****
|
|
LDK Solar (NYSE: LDK )
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$8.94
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***
|
|
GT Solar International (Nasdaq: SOLR )
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$5.19
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***
|
|
Solarfun Power (Nasdaq: SOLF )
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$5.16
|
***
|
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.
Wall Street's traders have fallen out of love with these five stocks, and are selling them hand over fist. Down here on Main Street, though, our 140,000 CAPS members (and counting) are a more patient lot.
We realize it will take time to grow the solar industry, for example, and the numerous three- and four-star ratings in this sector show that while we're not thrilled with the sector, neither are we bailing out (at least, not yet). Meanwhile, there is one stock on the list that we do remain excited about.
The bull case for General Steel
CAPS Member PaulNolasco calls General Steel a "growth company in China with an aggressive business plan: buying steel companies and trying to consolidate the industry. ... Infrastructure projects in China is booming because of their stimulus and it'll continue growing due to urbanization in rural areas of China."
adambutz agrees, and predicts: "[General Steel] will continue to flourish for many quarters ahead! As China continues to modernize, steel companies like [General Steel] will continue to grow and shareholders will reap the rewards over the long-term."
Why? JMJeffrey explains:
If China is to grow they will need steel. They will buy steel from a lot of different companies ([POSCO] for one) but they will buy local if the quality is sufficient. I believe that [General Steel] has the right management and enough government blessing to survive the inevitable [state-owned enterprise] consolidation and come out on the other side as a winner.
All of which sounds reasonable, I must admit. And yet, for all the enthusiasm over General Steel among my CAPS colleagues, I find myself decidedly un-enthusiastic about the stock. Sure, as I explained last week, times are tough in the steel industry. American steelmakers are all reporting revenue declines -- but the situation here looks a whole lot better than what we're seeing over there.
General Steel has lost money in three of the last six quarters, and remains unprofitable in aggregate over the period. Worse still, to my mind, the company's burning cash with abandon, and has a history of such incendiary behavior. Over the last five years, this company averaged cash-burn of $24 million per year. In contrast, American steel giants like U.S. Steel (NYSE: X ) and Nucor (NYSE: NUE ) are still piling up cash despite the downturn.
Time to chime in
If you ask me, General Steel is a trainwreck. A disaster in slow motion and a scandalous destroyer of shareholder capital -- but that's just my opinion, and judging from our CAPS contributors, I'm in the minority. So set a Fool straight, will you? Click on over to CAPS now and tell me what you think about this company.
Motley Fool CAPS: It's fun, it's free, and it just might make you famous.
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