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 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:

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.

Up on Wall Street, the investment bankers are unloading all of these stocks, and if truth be told, Fools aren't too hot on their prospects either. Why not? The reasons vary. Despite every reason you can name to expect the contrary, the U.S. dollar seems to be holding up just fine -- taking the shine off miners such as Agnico-Eagle. Sequenom just admitted to playing hanky-panky with its R&D results, while Burger King played it straight ... by reducing guidance.

One stock on which Fools differ vehemently with the professionals, however, is Learning Tree. Wall Street seems to be selling it off for no reason in particular, while CAPS members give it a high rating -- four stars. Open your workbooks to page 42, and let's find out why:

The bull case for Learning Tree
SAInvestorsClub introduced us to this stock way back in 2007:

They provide independent training (historically tech focused) but they are making more of a push into managerial training. ... During the tech bubble they expanded aggressively and overbuilt capacity. With mostly fixed costs there are two ways to move the needle. One increase occupancy (better marketing and course selection). Two decrease costs (eliminate expensive or unnecessary leases). They are doing both and shareholders are being rewarded.

Why might this appeal to investors today? As CAPS All-Star SammyG77 pointed out last fall: "During slow ecnomic times, is when the workforce learns new skills. Should see a spike in demand."  And fellow All-Star RonChapmanJr agreed: "Job losses are everywhere and people believe that education will help them get another job so they go get more skills from Learning Tree."

OK, that sounds logical. And yet, recent analyst downgrades on for-profit educators such as Apollo Group (NASDAQ:APOL) and peer Lincoln Educational Services (NASDAQ:LINC), like Learning Tree, an IT specialist, suggest that Wall Street has been losing faith in this thesis. Wall Street thinks the for-profits are dear, but does the high price of other stocks in this sector, generally, justify selling off Learning Tree in particular?

Not necessarily. Perhaps the greatest advantage that Learning Tree has over its rivals is its price. The stock sells for a 15 P/E right now. And while no analysts have posited five-year growth rates for Learning Tree (indeed, only two analysts cover the stock at all), they expect big dog Apollo to post 16% long-term growth, and the industry at large to grow 12% over the next five years. All else equal, it seems likely that Learning Tree should fall somewhere in that range as well. In which case, a 15 P/E looks reasonable.

Let's also not forget that after years of burning cash, Learning Tree has just put together back-to-back free cash flow-positive performances, generating $13.1 million in 2007, and $11.1 million last year. While these numbers fall somewhat short of what Learning Tree reports as its "net income" under GAAP, the fact remains: While the rest of the economy goes to heck in a handbasket, this company has been generating healthy free cash.

Time to chime in
With nearly half its market cap made up of cash, more cash pouring in with every passing quarter, and minimal analyst coverage, I think there's every chance Wall Street is calling this one wrong -- and our CAPS members right.

That said, if you want to disagree, feel free (this is the Fool, after all.) Click on over to Motley Fool CAPS and tell us what you think about Learning Tree.