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 -- and whether you should buy 'em:

Companies are selected from the "Institutional Ownership Down Last Month" list published on MSN Money after close of trading on Friday. Recent price and CAPS ratings from Motley Fool CAPS.

Wall Street vs. Main Street
Up on Wall Street, the pinstripe-and-wingtip crowd can't sell these stocks fast enough. Down here on Main Street, though, a lot of Fools are happy to take the other side of that trade. They're convinced that many of these shares present compelling bargains -- and none more so than Chesapeake Energy.

The bull case for Chesapeake Energy
CAPS member RINDER says of Chesapeake: "Positioned to do well as nat gas becomes the fuel of choice. May take a while but seems like a must."

spizziguy agrees: "Natural gas is cheap right now meaning it's time to buy. Hedge up while oil holds steady ... consumption will be on the rise as the demand for natural gas increases around the world."

And as demand for natural gas increases, jeffgoz believes that among the nation's gas companies, Chesapeake "has the largest upside exposure. ... jump in! [ExxonMobil's (NYSE: XOM) purchase of XTO Energy (NYSE: XTO)] was an indicator and we love T Boone Pickens!"

So as you can see, even as their prices plunge, there's a lot of enthusiasm surrounding natural gas in general, and Chesapeake Energy in particular. But is it justified?

Assets and (management's) liabilities
It depends. If you value Chesapeake on its assets, it's hard to argue that the company is anything but ridiculously undervalued. With 14.2 trillion cubic "cubic feet equivalent" of proven natural gas reserves on its balance sheet -- and the stuff fetching $3.86 per million BTUs in energy value -- Chesapeake's in-the-ground assets are worth $56.5 billion. Yet investors today are valuing Chesapeake's enterprise at a mere $27.9 billion, or a 51% discount to its asset value.

The problem, of course, is that Chesapeake's leaders haven't been doing a great job of bringing its ultra-valuable in-the-ground assets out of the ground at a decent profit. Gas prices have been plummeting, and cash flows dwindling, yet Chesapeake has spent the last several years sinking billions of dollars in capital expenditures into this business, with little to show for it.

Last year alone, the company produced $4.4 billion in operating cash flow from its business, yet it spent $5.2 billion capex in the process -- for a net cash burn of more than $850 million. This goes a long way to explaining why this giant of the natural gas industry is currently sitting on a debt load nearly as big as its own market cap.

Time to chime in
I see today's depressed natural gas price as a temporary, largely recession-induced phenomenon. I further believe that the same low prices that have Chesapeake investors hurting today will spur greater demand for gas (and greater profits for Chesapeake) in the years to come, enabling Chesapeake to reduce its debt load and improve the quality of its balance sheet. To me, it seems the only rational outcome.

Then again, as John Maynard Keynes is supposed to have once famously said: "The market can stay irrational longer than you can stay solvent."

So how long do you think an investor in Chesapeake must "stay solvent" to enjoy the eventual upside to this stock? Click over to Motley Fool CAPS, now, and state your case.

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