Contrarian Shopping List

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

Of all the Oracle of Omaha's orations, this one holds a special place in Foolish investors' hearts. When looking to bag a bargain, a panicked sell-off by jittery investors offers you a great chance to snap up stocks on the cheap. Considering how today is shaping up, we're entering prime territory.

In the short term, professional traders' pessimism can become a self-fulfilling prophecy. Desperate institutions lower their asking prices to get rid of a stock, prompting buyers' bid prices to fall in tandem, creating the very price decline that both sides feared in the first place -- until the selling stops.

Until it does, savvy investors can "get greedy," snapping up bargains from these fearful sellers (assuming they really are bargains). In today's column, we'll see which stocks Wall Street's motivated sellers are most frantic to unload. Once we've compiled this shopping list of potential contrarian picks, we'll check them against the collective intelligence of Motley Fool CAPS.

Today's contenders include:

Do you love a broad, deep, seemingly never-ending market sell-off? Of course you do. Where other than in the midst of a market maelstrom would you expect to find Wall Street's moneymen frantically unloading their stakes in five above-average-rated stocks?

Because that's exactly what we see in this week's list: Five stocks that CAPS investors love, and the Street's selling every one of them. One of these companies -- Interactive Intelligence -- even got the endorsement of growth-stock guru David Gardner and the Rule Breakers team last month. But that's not the one we'll look at this week (after all, you can read about that one for free any time you like). Instead, today we're going to examine the one stock on this list that's favored by more CAPS All-Star investors than any of the others. We're going to look at ...

The bull case for Synchronoss Technologies
Synchronoss bills itself as the "premier provider of on-demand transaction management software," helping "Tier One communications service providers ... automate, synchronize and simplify electronic service creation and management of advanced wireline, wireless and IP services across existing networks." (And if you understood any of that, then chances are you wrote the set-up manual for my DVD player, and I have a bone to pick with you.) Turning to the company's 10-K for specifics, we learn that what Synchronoss does is write software that sets up customer accounts, renews contracts, and turns on and off various functions on a piece of equipment for telecom customers like AT&T (NYSE: T), Verizon (NYSE: VZ), and Vonage (NYSE: VG).

• SaintCroix describes Synchronoss as "a great way to play [Apple's (Nasdaq: AAPL)] iPhone, but what's exciting about this stock for me is the possibility that it might be sitting on the sweet spot of convergence. Every time somebody votes on American Idol, a few pennies make their way to Synchronoss. Contemplate that and then contemplate people making purchases on their iPhone, but not typing in credit card info with all its hassle. Instead they charge the purchase to their cell phone, and are billed by AT&T (using Synchronoss' software to automate the process). Our cell phone becomes our wallet."
• All-Star CAPS player yippiekiyeh agrees that Synchronoss is "going to ride the iPhone wave to riches."
• Looking past the iPhone, Fellow All-Star dcooper101 observed last June: "Opportunity to grow globally. They also have lots of cash, generate free cash flow and have no debt. They also have a built advantage with their business model, which provides great revenue visibility."

How well these statements held up in the most recent quarter, we'll learn in just two weeks. But at last report, they were looking pretty accurate. Cash on hand at the end of last quarter verged on $85 million, comprising about 12% of the company's current market cap. Debt is counted in the thousands, not millions, and free cash flow amounted to about $14 million over the last four reported quarters. On the downside, that cash flow doesn't yet measure up to Synchronoss's net profit under GAAP. But free cash flow is growing rapidly, and that relationship could change.

Until it does, what we have here is a stock selling for a 33 trailing P/E, expected to grow its earnings at about 32% per year over the next half-decade. If those estimates prove correct, the stock would appear to be fairly priced today. On the other hand, if Synchronoss follows its usual practice of earning much more than anyone on Wall Street thinks likely, this stock could rocket.

Time to chime in
Of course, this column's not solely designed to tell you what I think about Synchronoss Technologies. We really want to know what you think about the company. If you've got an opinion, we've got a place to voice it.

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