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:

Company

Recent Price

CAPS Rating (5 max):

Medical Action Industries  (Nasdaq: MDCI  )

$10.60

*****

Washington Mutual (NYSE: WM  )

$5.96

*

Fifth Third Bancorp (Nasdaq: FITB  )

$10.05

*

AMCORE Financial

$5.93

*

Lehman Bros. (NYSE: LEH  )

$22.80

*

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.

Dag-gone! Somebody really has it in for banks. Actually, it looks like a whole lot of somebodies. Not only is Wall Street actively selling banking shares, but every one of the banks on today's list also gets just a single star (our lowest rating) from us mere-mortal investors on CAPS as well.

Fortunately, this list also includes one company whose business model does not consist of issuing $100,000 "liar loans" to people wanting to buy the McMansion of their dreams. Medical Action Industries' business is much more down-to-earth. This Hauppauge, N.Y.-based company manufactures mundane but essential "disposable medical products" such as bedpans and soap dishes, biohazard bags and hospital gowns. I know -- sexy! But read on, as we examine...

The bull case for Medical Action Industries
For such a boring company, MedAct sure attracts a lot of attention from the very best investors on CAPS -- our "All-Stars." Let's start off with an introduction from PsychoDr, who wrote back in 2006 that:

They are one of the smaller players in this area [medical products], but continue to grow annually through well timed acquisitions and seemless integration of acquired companies. Production of disposable medical goods results in a continuous stream of recurrent purchasing by their clients and acquisitions allow the company to offer a wider array of products. Profit margin is around 7%, however, the company prides itself on being the low price leader (like Wal-Mart (NYSE: WMT  ) ) and sales continue to climb yoy.

glenvar echoes the good doctor's thoughts, arguing:

The beauty [of the products MedAct makes] is that they have to be purchased and replaced. The stock has gotten creamed due to the fact that petroleum products are used in the manufacturing of the products, and the price of oil is rising so high [but] it just announced record sales and profits, and they have no debt. Way oversold.

Haugurafpeningum believes that: "With aging population this one should outperform." Then again, that same aging population is attracting attention from much larger rivals like Becton, Dickinson (NYSE: BDX  ) and Covidien (NYSE: COV  ) . Watch your back, MedAct.

Making money from the mundane
In Rule No. 7 in One Up on Wall Street, famed uber-investor Peter Lynch urges us to seek out "depressing" stocks. I humbly submit that a maker of bedpans qualifies. Reading the laundry list of banality that is MedAct's stock in trade, you could almost overlook the fact that this company sells for a mere 13 times earnings, yet is expected to grow at a 14% clip over the next half-decade. Real value hounds who dig even deeper may discover that MedAct's superior cash generation ability gives it an even cheaper price-to-free cash flow ratio.

Long-story short, MedAct is cheap, folks. If it gets much cheaper than this, I may have to buy some shares for myself.

Time to chime in
Of course, I'm open to persuasion to the contrary. Does Wall Street know something that the rest of Fooldom does not? If you see something we're missing, come on over to Motley Fool CAPS and clue us in.

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. 1855 out of more than 110,000 players. Wal-Mart and Covidien are Inside Value recommendations. The Fool has a disclosure policy.


Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 670972, ~/Articles/ArticleHandler.aspx, 10/2/2014 8:42:59 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement