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 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 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.

Wall Street fears owning these stocks, and to be quite honest, CAPS investors are none too keen on them either -- for the most part. One of the five does attract some interest among CAPS members. Newly public EnergySolutions engages in the management and disposal of radioactive waste -- everything from spent fuel rods and radioactive liquids from nuclear power plants to the more plebeian "glowing" gunk generated at medical and research facilities.

Dirty and dangerous work to be sure, but is it worth your investment? Let's find out as we examine ...

The bull case for EnergySolutions

• CAPS All-Star scobei told us last August that EnergySolutions' "Contracts that have already been secured will begin to pay off," and "Long term, use of nuclear power will increase (need for cleanup will increase)."
• LEGMAKER elaborates. Writing in May: "...a massive amount of money will be poured into the grid as many nuclear and natural gas power plants are built. ... Companies such as Cameco (NYSE:CCJ) and Exelon (NYSE:EXC) have a presence ... The reason [EnergySolutions] has upside is that there is no set disposal for nuclear waste or the cooling of the rods. ... Long term the company sees $55 billion in contracts awarded by the DOE over the next three years, and ... They are contracting with Shaw Group (NYSE:SGR) and Westinghouse to supply services for the nuclear reactors."
• Coming at the company from a valuation perspective, rosborneutahargues that: "Energy Solutions is a solid play, and way undervalued. P/E is far lower than its competitors, and they have a solid position in their market, with few competitors. The CEO personally bought 300,000 shares at $15 a couple of months ago ..."

Shades of Chesapeake (NYSE:CHK)! Indeed, the CEO did buy 300,000 shares, but today those shares are worth just a third of what he paid for them in September. Seems the CEO jumped the gun, but with the damage done, is now the time for you to become greedy?

Well, the stock is trading for just a 3.6 P/E, and has a price-to-free cash flow ratio to match. Analysts expect EnergySolutions to grow its profits at a brisk, 17% per-year clip going forward. Even with its hefty debt load, this makes the stock look awfully cheap.

We'll find out in just a few days how these growth projections are working out, when EnergySolutions reports Q3 earnings tomorrow after the market closes.

Time to chime in
So what do you say, Fool? Is that single-digit P/E setting you to drooling, or has the sudden drop in price -- and the risk of further falls -- given you a case of cottonmouth? Here's your chance to tell us what you think.

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