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.

Bankers gone bad
Which stocks are giving Wall Street the willies this week? Those of European banks.

Apparently spooked by the news that Allied Irish Banks needs to recapitalize, professional traders are selling off European banks in droves (but guess who's buying ...). Fortunately, our top stock this week has little to do with lending in London, or banking in Belfast. Cherokee's a pure play on good old-fashioned U.S. retail -- and that's just why investors love it.

The bull case for Cherokee
Bullish arguments for Cherokee abound. There's the company's marquee customer list, headlined by Wal-Mart (NYSE:WMT) and Target (NYSE:TGT). Its clean-as-a-whistle balance sheet. Its enviable 38% profit margin. But if you ask markodegr8 the real reason to own Cherokee, it's the fact that it "pays a great dividend that may be more than its EPS, but I really am expecting earnings to go up and that's why they can keep paying this dividend." (That dividend is $2 per share, or a 12% yield over the trailing 12 months.)

CAPS All-Star xilef99 agrees that the "good dividend" is the key reason to own Cherokee, but adds that it seems a "fairly risk free business" in general.

Now of course, no business is truly risk-free. But it's not hard to see where xilef99 is coming from with that assessment. As BillinOmaha describes, Cherokee "doesn't actually make the products that are sold under its many labels; it just collects franchise fees from the retailers that sell them! No factories equals very low overhead!"

So basically, Cherokee sells an idea (or even better, just rents it out) and cashes the checks. Maybe that's not 100% risk-free (you still need to find customers, and licensees), but as these things go, it's not a bad business at all. It was good enough to earn Cherokee a cool $11.8 million last year, while generating even more free cash flow than that -- $13.1 million. And the stock trades at a trailing P/E of 12.

Foolish takeaway
Admittedly, with the U.S. recession still sticking stubbornly around, analysts don't expect to see much in the way of growth out of Cherokee, even over the next five years. But honestly, with a 12% dividend in the bag, how much growth do you need on top of that? Personally, I'd be thrilled to just sit still and cash checks until the recession goes away.

Just like Cherokee is. And just like you should be, too.

Time to chime in
But hey, that's just my opinion. I'm more interested in learning what you think about Cherokee -- its valuation, its business model, and its chances of resuming growth once this recession ends. Got an opinion? We've got a place to voice it.

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