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 include:

Stock	Recent Price	CAPS Rating (out of 5 stars)
Olin (NYSE: OLN)	$12.56	****
Seaspan (NYSE: SSW)	$6.31	***
Myriad Genetics  (Nasdaq: MYGN)	$32.55	***
CIT Group (NYSE: CIT)	$3.02	**
InterMune  (Nasdaq: ITMN)	$12.39	**

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, investment bankers are unloading all of these stocks, and if truth be told, Fools aren't too hot on their prospects, either. We're feeling just so-so about SeaSpan and Myriad, and positively sick of InterMune and CIT. So which stock on the list elicits hope among our CAPS community? The obscurely named Olin.

Let's find out why, as we examine...

The bull case for Olin
CAPS member tacross3 calls Olin "an internally diversified company with a clean balance sheet on sale after old-fashioned lousy earnings during a down economy." And CAPS All-Star FrankieFoo03 sees two great reasons to love Olin: First, "their Winchester business should continue to outperform," and second, Olin pays out "a 6% + dividend." By the way, when Frankie tells us that Olin owns Winchester, this All-Star is not talking about the rifles, but the ammunition business. Olin makes small-caliber ammunition. It also collaborates with General Dynamics (NYSE: GD) in supplying the military with stuff that goes bang.

'Nuff said? Not quite. Fellow All-Star Nittany95 adds that Olin has:

[A] fantastic [balance sheet], great ROE and ROA in a business where size, and efficiency make all of the difference in the world. They have no debt maturities anytime soon and full availability on their revolver. ... At this price ... I wouldn't be surprised to see a bid by DOW (NYSE: DOW) or a private equity firm.

So let's tally up the thoughts: Olin is a guns 'n' ammo stock in a recession, a rich dividend payer, and a possible M&A player. So far, so good...

Now for the bad news. Olin has a 6 P/E, which sounds cheap, until you learn that most analysts expect the firm's profits to decline 8% per year over the next five years. The firm is also free cash flow-negative for the past 12 months. And even when it was making cash, Olin was never really consistently rolling in the stuff. On average, the firm has generated about $30 million per year in actual free cash over the past five years.

Foolish takeaway
Fools, I love a good dividend as much as anyone, and Olin's 6.4% yield is certainly rich. On the other hand, I'm not at all enthusiastic about paying $1 billion to own a company generating just 3% of that amount in average annual free cash flow.

Much as I hate to agree with Wall Street, I actually think they're calling this one right. When it comes to owning Olin, fear is the right attitude to adopt.

Time to chime in
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 Olin.