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 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). Problem is, investors aren't at all certain that "bargains be" this week. The majority of the companies on today's list get below-average marks from investors. And the endorsements of the remainder are far from unequivocal -- just three stars out of a possible five.

I guess that shouldn't be surprising. After all, while we often kid to the contrary, Wall Street isn't entirely populated with idiots. It's logical to assume that when the "smartest guys in the room" are selling stocks, there's something wrong with them. (The stocks, that is.)

For a look at what that something might be, we'll focus today on the most popular of the stocks on this week's list: Spartan Motors, which has at last count racked up 366 ratings from CAPS investors. Here's what they have to say about it.

Remember the Spartan Motors!
CAPS All-Star Jacks02 introduces us to Spartan: "[The company is] looking to benefit from more orders for MRAP vehicles from the US military. Recently inked a $100 million deal ... to provide chassis components for the new vehicles."

Never heard of an MRAP? Then let MerageP elucidate the concept for you:

Spartan Motors, Inc. is a world leader in the engineering, design and manufacturing of heavy-duty custom motor home chassis, fire truck chassis and cabs, fire apparatus, ambulances, emergency-rescue vehicles. ... Its expertise in heavy duty chassis helps it enter a new area to build ... Mine-Resistant Ambush-Protected, or MRAP [vehicles] ... With roadside bombs accounted for 70 percent of U.S. deaths and injuries in Iraq, we believe U.S. will put more budgets on protecting its soldiers by upgrading military vehicles.

The company's leverage to the war in Iraq has certainly contributed to its popularity among investors, driving the stock up more than 100% over the last year even after the recent sell-off. That said, BearTrade points out:

Spartan Motors build[s] ... fire apparatus chassis which I know very well. This is a solid company which has been around for a long time and is well respected in the fire service. The company seems to have controlled debt, make a nice profit and even gives out a dividend. If you were looking for a manufacturing company I would give this company serious consideration.

So far, so good. And now that the stock has shed 25% of its market cap over the past month, Spartan's 24 P/E ratio is finally starting to look attractive relative to the growth rate that analysts project for it (21% long-term).

But there is one caveat: Spartan has burned cash over the last 12 months, burned cash for all of last year, burned cash in 2004, and generated only minimal free cash flow in fiscal 2005 (less than $2 million for this company with a $500 million market cap). Personally, I like to see my investments earn cash money from their operations. Until Spartan shows it's capable of accomplishing that, it won't be winning a place in my portfolio. And it may not be winning a fourth star from CAPS investors, either.

Time to chime in
That said, the aim of this column isn't just to tell you what I think about Wall Street's rejects -- or even what our All-Stars are saying. We also want to hear what you know about the company. Is it only a matter of time before Spartan cashes in on its ability to build mine-proof vehicle chassis? Or is this more a case of: "I love what you're doing for the troops, but no way am I giving you my money"? Whichever way you lean, come on over to CAPS and make yourself heard.

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 No. 769 out of more than 60,000 raters. The Fool has a riveting disclosure policy.