Contrarian Shopping List

"We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful." -- Warren Buffett

Out of the quadrillions of quotations quarried from that most loquacious of quotationists, this one holds a special place in the hearts of Foolish investors. Are you looking to "buy low" so as to later "sell high"? If so, your best chance of getting that initial, low entry price comes when panicked sellers are unloading their shares at whatever price is on offer.

In today's column, we search the ranks of Wall Street's motivated sellers, and note which stocks they're most frantic to unload. Therein may lie the makings of a contrarian investor's shopping list. But don't just take my word for it. Before you decide to go in through Wall Street's out door, check your thinking against the collective intelligence of Motley Fool CAPS investors.

Today's contenders include:

The problem with pessimism
The problem with going against the grain on Wall Street is that when professional traders get pessimistic, their grim outlook can become a self-fulfilling prophecy -- at least in the short term. The more desperate institutions become to abandon a stock, the lower the price they'll accept to get rid of it. And as their "ask" prices drop, the "bid" prices of buyers will fall in tandem, creating the very price decline that they feared in the first place.

Until the selling stops.

In through the out door
In today's list, the stock we'd naturally focus on -- hard-falling Gold Reserve, scorned by Wall Street but rated a four-star stock by CAPS investors -- doesn't appeal to me at all. After seeing what happened earlier this month when Venezuelan strongman Hugo Chavez vowed to nationalize CA Nacional Telefonos de Venezuela (NYSE:VNT) and take control of the nation's natural resources, I want nothing to do with a company in the business of digging gold out of Venezuela. Long story short, I think Wall Street's right to sell this one.

Move just one slot down the list, though, and investors may have better luck with Rackable Systems. Its three CAPS stars don't tell nearly the Fool story here. Fully 91% of CAPS investors rating Rackable think it will outperform the S&P. Here's what they have to say:

• CAPS All-Star Steve819 likes the company "at this valuation" and sees "substantial growth opportunies [sic] ahead." And typos aside, Steve819's got a good record with Rackable. Back in November, he named the firm an outperformer, then exited it less than three weeks later after outperforming the S&P by a 13-point margin.
• IdahoInvestor, like Steve819, is rated in the top 1% of CAPS players and likes the fact that Rackable has: "No long term debt; estimated earnings growth rate next five years greater than current and forward price to earnings ratios ... [a] price to sales ratio less than competitors EMC and IBM, and quarterly revenue growth % year over year greater than those competitors."
• From a more M&A-oriented perspective, CAPS newcomer jhaw points out that "RACK's products are unique in terms of low temperature operation and energy efficiency. This is what datacenter operators really need--high density and low cost of ownership." jhaw finds the company "an attractive takeover candidate for a large server manufacturer like Dell, HP, or IBM."

Now it's your turn, dear reader. Do you agree with our three Fools above, who think Rackable's anything but an off-the-rack stock? Or would you prefer to tailor your response to the weaknesses of the business? Log on to CAPS now, and tell us what you think.

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 30 out of more than 20,000 raters. Dell is both a Motley Fool Stock Advisor and an Inside Value choice. The Fool has a disclosure policy.