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 pinstripe-and-wingtip crowd can't sell these stocks fast enough. And they may be right. Judging from the low star ratings they've doled out, CAPS members don't seem too keen on the companies' prospects, either.

The one stock we do like, however, has little in common with the several retailers on this list. A specialist in wireless and satellite communications, EMS Technologies looks like a smaller version of such big-name defense contractors as Boeing (NYSE:BA) or L-3 Communications (NYSE:LLL). And in fact, EMS does subcontracting work for both these firms, as well as for consumer-oriented ventures like DirecTV (NYSE:DTV) and Sirius XM (NASDAQ:SIRI).

But that's just the beginning of the story. To find out more about this tiny company, and learn why CAPS members love it, let's dive right into ...

The bull case for EMS Technologies 
CAPS All-Star scoobamang recently spotlighted EMS for its "good fundamentals," calling the firm's market in wireless telecom "a basically recession-proof industry." (To which Verizon and AT&T shareholders reply: "Recession-proof? That's news to us.")

But while some might quibble with the recession-proof characterization, CAPS members like 21popsontop do wonder if the "punishment [fits] the crime here?" EMS has lost nearly half its market cap over the last six months, even as the S&P soared higher. 21popsontop blames the firm's Nov. 5th earnings miss for much of the carnage, but argues: "Looks like an overreaction to me. Book value $16 Revenue a share $23 and although things have slowed in the economy looks to be getting it's share of business going forward."

Another of our All-Star investors, jamespeer this time, agrees that "their financials are not bad, they just replaced the CEO with a top man in the company, Q3 profits were not that bad, I'm looking for this one to recover after the recent stampede ..."

At the risk of being accused of me-too-ism -- me, too. EMS may have "missed earnings" last quarter. But the numbers it did produce still look pretty good to me. Based on GAAP earnings, the company sells for less than a 15 P/E, which seems plenty cheap in light of consensus projections of 20% annualized five-year growth.

And when you consider that EMS generated free cash flow nearly twice as great ($23 million) as its reported GAAP "profit" in the trailing 12 months, and has a squeaky clean balance sheet, featuring $12 million more cash than debt? The resulting enterprise value-to-free cash flow ratio of 8.0 looks downright cheap in light of the growth rate.

In fact, if EMS grows even half as fast as Wall Street seems to expect, I'd say the stock looks like a bargain.

Foolish takeaway
Does EMS's CEO switcheroo worry me? A little, maybe. But the company's explanation for showing its CEO the door and promoting its COO -- that the Board wants someone with a stronger engineering background at the helm -- sounds plausible. Maybe if EMS were bleeding cash and posting losses, I'd be more concerned. But all the numbers I see tell me this profitable small-cap is doing just fine.

This being the case, the fact that EMS is switching to a new boss who might help it do even better just doesn't scare me. Not with this company. Not at this price.

But hey, feel free to disagree. If you believe EMS's share price is doing no worse than the company deserves -- or if you find the CEO's departure more worrisome than I do, feel free to drop by CAPS and tell us why.

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