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 that institutions become desperate to abandon a stock, the lower the price they'll accept to get rid of it. And as their ask prices drop, buyers' bid prices 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. This week, investors believe they have found a steal of a deal in the stock of one company that works in two disparate industries: Synalloy, which manufactures metal pipe for various industries, as well as pigments, dyes, and other specialty chemicals for various other industries.

Even after falling 40% from its highs last month, Synalloy has been a star performer over the past year. It's more than doubled in value against an S&P 500 that has risen less than 20%. Let's find out why 73 out of 74 All-Star investors surveyed think this company will head back up the mountain.

The bull case for Synalloy

• CAPS All-Star and all-around good Fool TMF1000 introduces us to the company: "a producer of specialty chemicals, pigments, stainless steel pipe, vessels and process equipment, announces that the first quarter of 2007 produced a 405% increase in net earnings to $3,525,000, or $[0].56 per share, on a 23% sales increase to $44,398,000."
• Fellow All-Star dhd1491 does a great job of summarizing the bull thesis for us: "Sales and earnings are surging for SYNL's piping systems. Fantastic long-term infrastructure play. This would be a great story just for that segment ... but wait, there's more! Beginning July 1, 2007 mattresses must meet Federal fire-retardant guidelines. Synalloy's new Sleep-Safe product will launch sales for the Specialty Chemicals segment into orbit. Wall Street does not yet cover SYNL, so the stock has tremendous upside coming over the next year at least."
• The even more highly rated theotherjimmac agrees that Synalloy's "chemicals division growth should accelerate with fire-retardant requirements for mattresses sold starting July 1, 2007" and predicts earnings per share "heading for $2.50-3.00."

The downside to this story? Well, for one thing, Synalloy burned cash in two of the past three fiscal years. And the $12.2 million in free cash flow that it generated in fiscal 2005 wasn't enough to make up for the cash burned in 2004 and 2006 -- leaving a net cash burn of $0.5 million. While I'll admit that the company's growth in GAAP earnings looks fabulous, I prefer it when companies generate cash profits, as opposed to their accounting cousins.

Time to chime in
That said, the aim of this column isn't just to tell you what I think about Wall Street's rejects -- or even what our All-Stars are saying. We also want to hear what you know about the company. Is Synalloy's sell-off over, and can the firm begin generating some honest-to-goodness cash earnings -- consistently? Come on over to CAPS and tell us what you think.

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

Fool contributor Rich Smith does not own shares of any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 608 out of more than 60,000 raters.  Tyco International is a Motley Fool Inside Value newsletter recommendation. The Fool has a disclosure policy.