Fearful Stocks for Greedy Investors

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"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:

Stock	Recent Price	CAPS Rating (out of 5)
Smith Micro Software  (Nasdaq: SMSI)	$9.83	****
FormFactor  (Nasdaq: FORM)	$18.25	****
ReneSola (NYSE: SOL)	$3.88	****
Boston Scientific  (NYSE: BSX)	$8.47	***
Vical Inc	$3.34	**

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 traders are playing "hot potato" with these stocks, and no one wants to get caught holding the spud. Down here on Main Street, however, Fools know investing is serious business -- and refuse to play that game. While the traders fret over short-term vagaries in stock price, we're keeping our eye firmly on these companies' long-term prospects, and guess what?

We think three of these stocks are winners.

Now, I've examined each of the three stocks sporting above-average CAPS ratings this week -- Smith Micro, FormFactor, and ReneSola. Curiously, it looks to me like the best bargain of the lot is the stock that looks most expensive. Want to know why? Then read on as we examine ...

The bull case for Smith Micro Software
CAPS member stock98poet spotlighted Smith Micro soon after its purchase of PCTEL's connectivity business last year: "Smith Micro now supplies connectivity solutions to 8 of the top 10 North America carriers and is a leader world wide as well." (AT&T (NYSE: T), Sprint Nextel (NYSE: S), and Deutsche Telekom’s  T-Mobile -- they're all on Smith Micro's call list.) Furthermore, Smith Micro is now: "a leader in WI-MAX and IMS technologies which will be huge growth segments over the next several years."

kab1952 agrees that these are all: "Smart moves," and thinks this "innovative" company is "postioned for growth." Last but perhaps least understandably, CAPS All-Star ipfmanager muses as to how the stock looks rather: "RFMD-ish" -- referring to RF Micro Devices (Nasdaq: RFMD), I suppose.

What does ipfmanager mean by that? I can think of at least one way the two companies are alike. If you recall, just last week we profiled RF Micro in this very column, and for the very same reason that put Smith Micro on our radar -- Wall Street was selling it. And they've got one more thing in common: I think Wall Street's as wrong to sell Smith Micro this week, as it was to dump RF Micro last week.

Oh, I know that with a triple-digit P/E, Smith Micro looks pretty expensive right now -- but looks can be deceiving. Dig deeper into the Smith Micro story, and I think you'll find some real value hidden here. Value like:

• $44 million in cash reserves, versus no long-term debt whatsoever.
• $20 million in trailing free cash flow -- a number that's grown by leaps and bounds over the past several years, which indicates Smith Micro's cash pile will probably only grow bigger.

Combine these numbers with the company's expected growth rate, and you're looking at a real steal of a deal -- a 20% grower, priced at 16 times free cash flow, and with extra cash tossed in for free.

Time to chime in
Of course, that's just my opinion. But the point of this column isn't just to tell you what I think about the company, or even what my fellow CAPS members think. What we'd really like to know is whether you believe this company has a future.

And here's your chance to tell us. Click over to Motley Fool CAPS right now, rate the stock an outperform or underperform -- and tell us why.

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