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.

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:

With most companies on today's list scoring below average on CAPS, and one just barely (average, that is), choosing this week's most likely bouncer is a cinch. Fans of the Fool stable of investing newsletters will recognize this one right away: Corporate Executive Board got the nod from both Motley Fool Stock Advisor (way, way back in August 2002) and more recently, from Motley Fool Inside Value as well.

But "professional" Fools aren't the only ones on Board with this stock. Our lay investing community is crying "all a-Board" as well (What? Is that pun already getting old?) Let's find out why, as we examine ...

The bull case for Corporate Executive Board
CAPS All-Star stock picker F4Phanatic introduced us to the company way back in October 2006: "With over 20 years experience in managing high-quality executive memberships, Corporate Executive Board Company is able to shape strategic debate and to accelerate tactical implementation in even the most progressive organizations. [Corporate Executive Board] provides its services to 2,800 of the world's largest and most prestigious corporations, including over 80% of the Fortune 500 ... primarily on an annual subscription basis."

After studying the business early this year, fellow All-Star rbrosie4 concluded: "This company has a unique business model and provides a service that no other company can at the price point. The growth is virtually limitless if you look at the number of non members in targeted segments."

In early December, All-Star Slappster called the Board:

Ridiculously profitable...  [R]equires very little capital investment to grow, and almost every dollar of earnings growth falls through to free cash... allowing them to continue funding share buybacks and dividend hikes. Plus, they have no direct competitor and in the meantime have already locked up 80% of the Fortune 500. That's a moat, folks.

It's also a networking tool. In at least one recent earnings report that I read, the Board seemed to have successfully "name-dropped" existing marquee clients such as Dow Chemical (NYSE: DOW) and Monsanto (NYSE: MON) as a tool to attract new clients.

Personally, I've watched this stock from afar for years, but only really began to wake up to the valuation when Philip Durell highlighted it for us at Inside Value a couple of months ago. I wasn't thrilled with the price, even then. But today, the Board sells for about 19 times trailing earnings, and analysts expect it to grow those earnings at 18% per year over the next half decade. Sure, the company generates less free cash flow than it reports as net profit, so its price-to-free cash flow ratio is a bit higher. That's ordinarily a minus in my book, but today, I actually consider this a plus.

Maybe I'm being overly optimistic here, but I suspect that the weak free cash flow is a short-term phenomenon (a doubling in capex last year didn't help). In future years, I bet we'll see the Board return to its high-free cash flow habits. We just might be looking at a once-in-a-decade chance to catch this stock at a low.

Disagree? Feel free. Come on over to CAPS and tell me why I'd be crazy to own this stock.

Or if you prefer, take a free, 30-day trial to Stock Advisor -- or Inside Value, for that matter -- and tell it to our newsletter advisors directly.