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.

Investment bankers can't hit the "sell" button fast enough on these stocks. But while up on Wall Street, they're frantic to unload 'em, down here on Main Street, we take a more nuanced view of the companies. While we're none too eager to buy an overpriced Apollo Group or the (perhaps too) exotically named Tanzanian Royalty, investors see quite a bit of value in Mosaic... and we're positively ecstatic at the chance to buy Pharmaceutical Product Development at half the price it fetched just seven months ago.

Is that a wise decision? More importantly, is it Foolish? Let's find out, as we examine ...

The bull case for Pharmaceutical Product Development 
CAPS All-Star TSIF starts us off with a brief introduction to the company:

Pharmaceutical Product Development Inc continues to mix research for hire, and research for shared gain to try to expand business. They also acquire small companies. Decent margins, no debt, good cash flow.... A full range of services that are usually farmed out by the "big boys" who don't want to keep specialized staff.

("Big boys" refers to customers such as Johnson & Johnson (NYSE:JNJ) and Merck (NYSE:MRK) -- both big by any definition.)

Jumping aboard after the stock's Wednesday sell-off is Ulenspiegel101, who argues: "Whatever happens, pharmaceutical research will have to keep going." Searching for signposts in the fog of a shifting health-care policy, Ulenspiegel101 adds: "With more public finance, evidence base and cost-benefit analysis will become more important."

Indeed, that shift in health care just might be the theme to play with PPD. SmoothHughes also pointed out in a recent pitch: "National medicine might even help as big pharma looks to reduce costs through more outsourcing." In the meantime, SmoothHughes likes PPD's "balance sheet with $4/share in cash ... no debt [and] strong founding management."

Now, a lot of investors were understandably spooked by PPD's earnings warning last week. Management pulled back on both revenue and earnings guidance, and (worst of all from my point of view) posited a substantial reduction in free cash flow for the current year. Running down the forecast, management now expects:

• To earn about $1.57 per share this year ...
• on a bit more than $1.4 billion in revenues ...
• and generate $200 million in operating cash flow in the process.

Still, if PPD manages to accomplish all this while spending no more on capital expenditures than it did last year, it should generate about $130 million in free cash flow by year-end -- putting the enterprise value-to-free cash flow ratio at roughly 13. Given that analysts who are following (and inexplicably, now selling) the company continue to believe that PPD will grow earnings at about 15% long-term, the stock looks like a bargain to me. Throw in a tidy 2.6% dividend to reward your patience as you wait for everyone else to bid the stock up to its true value.

Time to chime in
But hey, that's just my opinion. What I'd really like to know is what you think about Pharmaceutical Product Development (other than the obvious -- that the name's way too long, even with me leaving off the "Inc.").

And wouldn't you know it -- we've got just the place for you to tell us what you think about PPD. Like the sign in the cafeteria says: Click on over to Motley Fool CAPS now, and lettuce know.