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 we 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. This week, investors believe they have found a steal of a deal in the stock of "combustion optimizer" Fuel Tech. Better than nine out of every 10 All-Star investors polled on CAPS think Fuel Tech is a buy. Let's find out why that's so.

The bull case for Fuel-Tech
NetscribeInduGds introduces us to the company:

Fuel Tech ... sells out NOx [nitrogen oxide] equipped with a retrofittable system, for the reduction of nitrogen oxide in boilers, incinerators, furnaces, and other combustion sources. The air pollution control (APC) company also makes Fuel Chem to reduce slag formation and corrosion in boilers and furnaces. Both of FTEK's business segments [target] the electricity generation sector, providing solutions to utility and industrial combustion units. With electricity demand and coal-fired generation capacity projected to increase 4.8% and 4.5% annually (according to EIA estimates), it is believed that sheer size and growth of the domestic market, creates the most substantial opportunity for FTEK's APC and FUEL CHEM segments. ...  FTEK is pursuing a geographic expansion strategy, which offers attractive long-term growth potential. While domestic market provides substantial opportunity for both segments, it is believed that international markets, particularly emerging markets such as China, India, and Mexico, are large and under penetrated.

All-Star CAPS player EriKarju says Fuel Tech has "a sizeable return customer base" and adds, "Use of coal for energy production is likely to increase and clean air regulations are also likely to get tougher -- both good for FTEK's business."

With prospects so bright, why is Fuel Tech even on today's list? CAPS players grmind explains that it's "[s]eriously undervalued due to a quarter in which they were caught between big investments in their business and contracts that were just starting up. "

Reviewing the quarter in question, though, we see that this wasn't just a one-quarter thing. Not only did Fuel Tech miss revenue and earnings estimates in August, but it also shaved about 10% off its own revenue forecast for this year. Maybe the company, burned once, is underpromising now so as to make overdelivering easier in the future. Or perhaps Fuel Tech is just running on fumes.

Which is it? You tell me.

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. 394 out of more than 65,000 players. The Fool has a disclosure policy.