Contrarian Shopping List

"We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful." -- Warren Buffett

Out of the quadrillions of quotations quarried from that most loquacious of quotationists, this one holds a special place in the hearts of Foolish investors. Are you looking to "buy low" so as to later "sell high"? If so, your best chance of getting that initial, low entry price comes when panicked sellers are unloading their shares at whatever price is on offer.

In today's column, we search the ranks of Wall Street's motivated sellers, and note which stocks they're most frantic to unload. Therein may lie the makings of a contrarian investor's shopping list. But don't just take my word for it. Before you decide to go in through Wall Street's out door, check your thinking against the collective intelligence of Motley Fool CAPS investors.

Today's contenders include:

The problem with pessimism
The problem with going against the grain on Wall Street is that when professional traders get pessimistic, their grim outlook can become a self-fulfilling prophecy -- at least in the short term. The more desperate institutions become to abandon a stock, the lower the price they'll accept to get rid of it. And as their "ask" prices drop, the "bid" prices of buyers will fall in tandem, creating the very price decline that they feared in the first place.

Until the selling stops.

In through the out door
When it will stop is anybody's guess. But until it does, savvy investors have a chance to "get greedy" and snap up some bargains from these fearful sellers (if bargains they truly be).

As luck would have it, investors see not one, not two, but three bargains this week. While two stocks make the list with abysmal one-star ratings, we've got a three-way tie in the above-average four-star category. So, exercising my editorial discretion, I'm going to break the tie and focus this week's column on the stock that looks to offer the best value of the three.

The bull case for Cascade Corp
Don't get too excited, though. Our featured stock this week is also arguably the most boring of the three contenders. Cascade's claim to fame is ... manufacturing "materials handling load engagement devices and related replacement parts." And if you're wondering what exactly those might be, they're basically things like this, and this. Sexy, huh?

Well, not everyone can sell Web 2.0 e-widgets and solar-powered nano-stem cells. Somebody's got to make stuff that actually does the world's work, and as our CAPS players suggest, there's no law that says the workaday companies can't make for investments that are just as good as the techies.

• Lumpygrunt, for example, likes the fact that Cascade produces "strong, steady cash flow."
• CAPS All-Star xds68 agrees, calling Cascade a "reasonably valued small cap with good market niche and strong financial flexibility [that] should support accretive future acquisition." (Which I take to mean that Cascade can afford to buy itself some growth if it's of a mind to.)
• Not that it will need to, though. wshawn thinks Cascade can benefit from selling into a "very strong Chinese lift truck market and general economic conditions in China."

Reviewing Cascade's 10-K filing to sketch out its competitive position, I noticed one other thing that may interest Motley Fool Hidden Gems members in particular: Cascade names Hidden Gems recommendation Actuant (NYSE: ATU) as one of its key rivals, in addition to firms such as Gehl (Nasdaq: GEHL) and IDEX. Seeing as that pick has netted our subscribers 28% profits in not quite a year on the scorecard, yes, I'd say there's plenty of potential for profit in this industry.

With one caveat: price. At just nine times trailing earnings, a share of Cascade looks to be costing you half what a share of Actuant goes for. But before you rush out and buy Cascade over Actuant on that basis alone, consider two things: First, that analysts expect Actuant to grow its profits about twice as fast as Cascade over the next five years. Second, that both firms are selling for about the same multiple to free cash flow -- 11, to be specific. Personally, while Cascade looks to me to be a fine company, Actuant actually looks like the better bargain.

Time to chime in
Of course, the aim of this column isn't just to tell you what I think about Cascade, Actuant, or any other company on today's list. What we really want to know is what you think about these companies. If you've got an opinion, we've got a place to voice it.

Motley Fool CAPS: It's fun, it's free, and it just might make you famous.

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