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 they can get.

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
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).

As luck would have it, investors see a couple of potential bargains this week. Coincidentally, they both call the overheated Chinese stock markets home: Fabless semiconductor maker Spreadtrum is the first, and AMEX-listed vaccine maker Sinovac (a recent Wall Street darling) is the second. Spreadtrum gets the five-star endorsement from CAPS, though, so today we will be taking a look at ...

The bull case for Spreadtrum Communications

• sprilaf makes perhaps the best case of any of our pitchers in favor of Spreadtrum: "This company should see some growth towards the end of the year as handset builds pick up, however, last quarter they reported worse than expected ASP decline at -10%. If units make up for the ASP decline, the stock should be okay in the short-term. Over the long-term if all goes well with TDSCDMA, they along with Mediatek will own the space for chipsets. ... the real reason to own this stock is to ride the volume growth in TDSCDMA chipsets ... I think we're safe to assume that the Chinese government is going to do everything it can to safeguard it's own homegrown 3G standard so my bet is on SPRD to put up some big numbers in the next 2 years."
• Tophinater is more cautious: "Their product offers nothing ground breaking but their past history shows a lot of growth. The majority of their debt I assume is from building their R&D centers and will probably pay for themselves within the next few years. The company is in a highly competitive market but does show some promise."
• And laconic to a fault, rodnyb sums up his investment thesis in four words: "Fast growth, low PE."

Simple being my forte, let's look at what's got rodnyb feeling his horns on Spreadtrum. The company sports a 23 trailing P/E -- more expensive than rival chipset maker Texas Instruments (NYSE:TXN), but certainly "low" relative to Infineon (NYSE:IFX), which is currently losing money. As for whether Spreadtrum is growing "fast," well, analysts do expect it to handily beat its rivals. They predict 25% annual profits growth for the Chinese chipmaker, as compared to 18% for the Texans, and a mere 8% for the German company.

Admittedly, 25% growth is a pretty tall hurdle to clear. But if Spreadtrum can make the leap from promise to performance, its current price (down nearly 40% from its high) could be offering investors a more than fair entry point.

Time to chime in
Of course, the aim of this column isn't just to tell you what I think about Spreadtrum Communications -- or even what the other CAPS players are saying. We also want to hear your thoughts on the company. If you've got an opinion, we've got a place to voice it.

Motley Fool CAPS: It's fun, it's free, and it just might make you famous.