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 of the Oracle of Omaha's orations, this one holds a special place in Foolish investors' hearts. When you're looking to bag a bargain, a panicked sell-off among jittery investors offers you a great chance to grab 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. Buyers' bid prices then fall in tandem and create the very price decline that both sides feared in the first place -- until the selling stops.

Until it does stop, savvy investors can get greedy and snap 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:

Companies are selected from the "Institutional Ownership Down Last Month" list published on MSN Money on the Saturday following close of trading last week. Recent price provided by Yahoo! Finance on the same date. CAPS ratings from Motley Fool CAPS.

Now this is interesting. For the second time in three months, we find Main Street in complete agreement with Wall Street. Wall Street thinks every stock on today's list deserves to be taken out, lined up, and shot. Main Street wants to cheerlead during the execution. The end.

The end?
OK, maybe not the end. There is one stock on today's list that deserves a few extra words, and that's 3D Systems. Like Motley Fool Rule Breakers recommendation Stratasys (NASDAQ:SSYS), with which it competes, 3D works in the cutting-edge field of really-on-demand production. 3D manufactures a sort of "printer" that can literally manufacture a physical object for you when you need it -- Star Trek-style.

The bull case for 3D Systems

• Last year, ibsmug informed us that 3D has "invested heavily in product development." Our CAPS player continues: "There is a big flywheel here in that the new products will bring capitive consumables revenue for many years to come."
• And aclowe01 added a few months later: "They have a great product line and with the V-Flash compact desktop modeler they can build a good platform for the future."

But as I described in my earnings write-up last month, 3D has so far failed to capitalize on its potential. Sales fell last quarter, and worse, sales of the company's highest-margin "printers" were hit worst of all. The CEO himself described them as "anemic." As for the consumables business that got ibsmug so excited, sales declined there, too. 3D is losing the battle for market share to rival Stratasys, and as a result, its stock has fallen more than 60% since the last time we saw anyone write a bullish sentiment about the stock on CAPS. So is there still a bull thesis here at all?

Maybe, maybe not
I can't argue that 3D is a "buy" today, given its cash burn and lack of profit. Still, the company did generate positive free cash flow in three of the past five years. It may not exactly be spanking Stratasys, but neither does the "D" in "3D" necessarily stand for "dead." So long as 3D retains a sizeable customer base populated by marquee names such as 3M (NYSE:MMM) and Sony (NYSE:SNE), I have to believe that its products remain attractive. And in a new market like this one, there's certainly room for two strong players. The trick will be for 3D to earn the "strong" label in that paradigm.

But even if it doesn't, there's still the possibility that Stratasys will eliminate the threat of a resuscitated 3D by buying out its rival on the cheap. In recent years, we've seen similar happenings in niche industries such as educational software (Blackboard (NASDAQ:BBBB)) and infant-hearing screening (Natus Medical), creating de facto mini-monopolists overnight.

I wouldn't bet the bank that this will happen, but I wouldn't rule it out, either.

Time to chime in
The aim of this column isn't just to tell you what I think about 3D Systems -- or even what other CAPS players are saying. We really want to hear your thoughts. Head on over to Motley Fool CAPS, and tell us what you think.

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