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 that institutions become desperate 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
When it will stop is anybody's guess. But until it does, savvy investors have a chance to "get greedy," and snap up some bargains from these fearful sellers (if bargains they truly be).

In today's list, CAPS players appear to think "they be" -- for at least one of our stocks. Although five of the six receive below-average ratings, one company here receives a stellar five stars: the cryptically-named AXT, Inc., which manufactures semiconductor substrates for sale to chipmakers such as Samsung, Bookham (NASDAQ:BKHM), and Motorola (NYSE:MOT) spinoff Freescale (NYSE:FSL).

Reviewing the company's CAPS page, we see that 51 of the 53 investors who have rated the company think it's a beaut, including all 15 of its All-Star raters. Here's what a couple of our contributors have to say about AXT:

• jaygatsby49 says, "I am reading an awful lot about an upcoming 'Green' technology boom. These guys are profitable and have established technology."
• BLAISEMD sees "Increasing demand for Gaas and Germanium in handsets and Solar," which he thinks will "drive this stock." Presumably, upwards.

If both these comments seem as difficult to decipher as the meaning of AXT's name, then you're not alone. It took me some digging to learn, for example, that "Gaas" is a typo -- BLAISEMD actually meant to say "gallium arsenide," or "GaAs" -- one of the compounds from which AXT forms its substrates. And as for what semiconductors have to do with "green technology," it seems that some of AXT's products are used in manufacturing satellite solar cells.

Help wanted
Since it's beloved of CAPS players, but carrying a sky high P/E, generating negative free cash flow, and lacking analyst projections for its long-term performance, investing in AXT while the "smart money" cashes out will take a lot of intestinal fortitude. Before laying out your hard-earned cash, I'd encourage anyone looking at buying this one to get together on CAPS and share some knowledge about just what it is that this company does, and how quickly it might grow into its valuation. (Did I mention that the P/E is 130?)

Together, we'll beat the Street yet.

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 137 out of more than 27,000 raters.