Fearful Stocks for Greedy Investors

"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 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. When desperate institutions lower their asking prices to get rid of a stock, buyers' bid prices 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 and snatch bargains -- assuming they really are bargains -- from these fearful sellers. 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 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. CAPS ratings from Motley Fool CAPS.

Professional investors are selling these five stocks with abandon. Yet in every single case, CAPS' verdict is clear: a mediocre three stars. That's the ratings equivalent of "Meh, whatever."

A more perfect picture of equanimity is hard to imagine -- and it's a fertile ground for metaphor, too. No one's headed for the exits here, but CAPS members aren't backing up any trucks, either. Which of these five stocks shall we lift off the fence and attempt to build a real buy thesis for?

Bare Escentuals, come on down
Two of the five stocks appear to have compelling valuations, in this Fool's view. I didn't have a lot of luck arguing in PC Mall's favor back in March, though. (In literary circles, we call this "understatement" -- the stock's fallen 40% since.) Let's see whether we have any better luck with Bare Escentuals. Here's what Fools have to say in its defense:

Fellow Fool and CAPS All-Star TMFSarahGen likes the stock for its "[strong] repeat business from the most loyal customers in cosmetics." That, our player says, "combined with growing international sales [and] accelerating door openings [at Ulta (NASDAQ:ULTA), Sephora, Nordstrom (NYSE:JWN)] through end of year, [means] that today's price is a gift."

What price was that again? Another CAPS All-Star, Somnambulo, pegs it at "peg 0.54, trailing [price-to-earnings ratio] of 11.5 after the plunge."

And what was it Sarah was saying about growing sales? SammyDi explains:

They have been manufacturing natural cosmetics for years, but the mineral concept is just becoming popular and is spreading like wildfire. Other companies are copying them, but their products can't compete. Also, loyal Bare customers are eager to snap up their trendy cosmetic bags and high quality makeup brushes. Selling on QVC earns them a huge marketshare.

So what exactly has investors streaking away from Bare Escentuals, anyway? As my Foolish colleague Alyce Lomax described last week, the company just reported earnings that sent a cold shiver down Wall Street's spine: surging inventories, tall stacks of uncollected bills, guidance that fell short of expectations, and a hefty slug of debt. Everywhere you look, it seems, red flags are waving.

Yet with the stock down 32% in three trading days, an investment in Bare Escentuals today carries much less risk than it did last week. As Somnambulo correctly observes, the P/E is barely peeking into the double digits these days, and against long-term growth estimates in the low 20s, that makes for an awfully enticing PEG ratio.

Let's see whether the company's free cash flow story looks similarly attractive -- once management gets around to releasing its cash flow statement, that is. Seems to me, Bare just might bear closer examination.

Time to chime in
Of course, the aim of this column isn't just to tell you what I think about Bare Escentuals -- or even what other CAPS members are saying. We really want to hear your thoughts. Head on over to Motley Fool CAPS, and tell us what you think.

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