"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:


Recent Price

CAPS Rating
(Out of 5)

Harmonic  (NASDAQ:HLIT)






D.R. Horton (NYSE:DHI)






Star Scientific (NASDAQ:STSI)



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.

Up on Wall Street, the investment bankers just can't unload these stocks fast enough. And truth be told, Fools aren't all that keen on all of them either. Judging from the star ratings, we think D.R. Horton should be foreclosed on, United Airlines grounded, and Star Scientific consigned to a deep, black hole.

But on the other end of the scale, it also seems we've found two stellar prospects in the bunch -- Harmonic and Net1. Now, longtime Fools will know that Net1 is actually a Motley Fool Rule Breakers recommendation already. Any time you want to get the lowdown on that one, a free, 30-day trial of the service is just a click away. Not so with Harmonic, however (or at least, not yet.) Seems we'll have to turn to our CAPS investors to learn ...

The bull case for Harmonic
CAPS member fmahnke starts us off with the worst-case scenario for Harmonic, asserting that the stock's "$2.25 in cash with $3 tangible book ... define the downside." And the upside? Says fmahnke:

Their business is focused in the ... megatrend of building out broadband systems in order to support HDTV and video on demand services with a strong international focus. I was impressed by how top management handeled their quarterly confernce call. I see normalized EPS at .50 and with [conservative] 15% [growth] rate and $2.25 in cash.

CAPS legend tenmiles -- one of just a handful of investors with a perfect CAPS score of 100.00 -- pointed out in November that "Cable spending [is] holding up better on relative basis than [telcos]" and that Harmonic is a "video delivery play beaten up too much by the market." Our CAPS member also points to "20% historical ROE with forward p/e roughly half ... [and a] strong balance sheet" as supporting the buy thesis on this one.

And fellow All-Star steveb63 agrees: 

Fundamentals are sound, Zero debt, Excellent Balance Sheet. Well positioned and in demand in an expanding market.

Sounds pretty good so far, huh? But before we all go running off to buy shares of Harmonic, let's quality-check these assertions. First the bad news: tenmiles may like Harmonic's "historical ROE" of 20%, but more recently, the company has been earning less than half that figure -- just 8% on its equity.

Similarly, fmahnke's assertion that the company's 15% growth rate is "conservative" doesn't quite wash. Fact is, 15% is the average rate of growth projected by the eight analysts following Harmonic. What's more, this average number is higher than what most analysts expect to see in the broader communication-equipment industry -- faster, too, than the growth rates for some of the giants against which Harmonic must compete. Cisco (NASDAQ:CSCO) and Motorola (NYSE:MOT), for example, are both pegged for about 10% annualized five-year growth.

That said, there are a couple of facts about Harmonic that our CAPS members neglected to mention -- but that you deserve to know. For one thing, Harmonic has generated more than $35 million in free cash flow over the past year , or 10% more cash than the company reported as GAAP earnings. At its current enterprise value then, Harmonic sells for less than seven times its annual free cash flow. At this price, the company doesn't need to come anywhere near "15%" growth to be a bargain.

But if it does, the stock's downright dirt cheap.

Foolish takeaway
Of course, the aim of this column isn't just to tell you what I think about Harmonic -- or even what other CAPS players are saying. We really want to hear your thoughts. Click 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.

Net1 U.E.P.S. Technologies is a Motley Fool Rule Breakers selection.

Fool contributor Rich Smith does not own shares of any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 657 out of more than 130,000 members. The Fool has a disclosure policy.