Fearful Stocks for Greedy Investors

• Email
• Share
• Print

"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:

	Recent Price	CAPS Rating (5 max):
Brink's (NYSE: BCO)	$21.06	****
USG  (NYSE: USG)	$9.12	****
Las Vegas Sands  (NYSE: LVS)	$6.11	**
Ann Taylor Stores (NYSE: ANN)	$6.37	*
General Motors  (NYSE: GM)	$3.01	*

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 fears to own these stocks, and to be quite honest, we're none too keen on them either -- for the most part. But two of these companies still enjoy the support of the CAPS community even as the country endures twin housing and banking crises: Gypsum giant USG, which has been devastated by the former crisis, and Brink's -- best known for its bank armored car division -- which I can only imagine has been tarred by the banking crisis.

The bull case for Brink's
Brink's, as you may be aware, has been busy evolving of late. Earlier this month, it spun off its Brink's Home Security (NYSE: CFL) division as a separate entity. Last week, it unloaded "certain coal assets" on Massey Energy (NYSE: MEE) in exchange for nearly $15 million in cash and assumed liabilities. On Brink's CAPS page, investors have been discussing this restructuring for more than a year:

• OracleofNormal predicted as early as April of last year that: "pressure to spinoff business will lead to increased valuation for both."
  
• So why do investors like Brink's in the first place? nyOracle observes that "Brink's has an excellent cash flow relative to current share price without the spin-off. Potential for shareholder gain either way."
  
• Now that the spinoffs are established fact and not mere conjecture, how does this affect what remains of Brink's? aj350 commented in March of this year: "company is a cash flow machine, spin-off of more capital intensive BHS will bode well for the remaining Brink's which has seen faster revenue/operating income growth with less capex." aj350 then runs out on a limb and predicts that post-spinoff, we will see Brink's properly trading for "uptowards 15-20x [free cash flow] given international growth prospects/demand, while I expect BHS to trade at around 10-15x FCF."

How free cash flow production breaks down between BHS and Brink's remains unclear, but Brink's did do us the favor of breaking out its balance sheets and income statements between its two post-spinoff parts. Thus we know that, year to date, the core business has generated about $2.4 billion in revenues and earned about $96 million in profit thereon.

Projecting these numbers out through the end of the fiscal year, it seems Brink's is selling for about 7.5 times annual earnings. That looks pretty good relative to the 8% long-term profits growth that analysts have been expecting out of Brink's. And if aj350 is right and the core business experiences "faster revenue/operating income growth" than it did pre-spinoff, it would make the post-spinoff business not only leaner and easier to understand for investors, but also a better bargain than ever before.

Time to chime in
Personally, I think aj350's analysis is right on the mark. Given the state of the housing market these days, I don't see a whole lot to feel "secure" about in the field of "home security." Seems to me that Brink's should indeed grow faster without the HS division than with. But what do you say, Fool? Tell us now.

Personally, I like both Brink's and USG. And if you want to know why USG is a buy, a mouse click and a free trial to Motley Fool Inside Value will tell you all you need to know about the stock.