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.

Professional investors can't wait to unload these stocks -- and CAPS members seem more than happy to take 'em off their hands. With the understandable exception of AIG, Fools have high hopes for most of these companies.

But for none so much as the mellifluously monikered Grupo Casa Saba.

The bull case for Grupo Casa Saba

• "Saba" first caught the eye of CAPS All-Star investor Junkyardhawg1985 late last year, when he noticed it "trading at net tangible assets ... profitable, debt-free, and growing revenue. The Enterprise value to revenue ratio for [Grupo Casa Saba] is very low at 0.21." All fine, except that now the company isn't debt-free anymore and has about $148 million in financing.

• Fellow All-Star djbouch55 noticed Saba even earlier -- in the summer of '07, in fact. What about the stock caught his imagination? "Mexico is an emerging market poised to benefit from immigration reform in the U.S. SABA will capitalize on the growth and ... advancement of Mexico."

• It's a macro thesis into which Saba fits quite nicely. The company operates in the wholesale business, you see, shipping everything from generic pharmaceuticals to health and beauty aids to televisions hither and yon south of the border. If there's a business model more tailor-made to mirror the growth of the Mexican economy, I can't imagine it. Pharmaceuticals sales, however, account for the vast majority of Saba's business, almost 90%, which cdubbies thinks is a good thing: "Generic pharma should be a strong industry in tough economic times and this company has little competition in an emerging market, causing it's profitability to be double the industry standard. This stock is probably undervalued because it lacks coverage from Wall St."

All together now: "So how profitable is it?"

And the answer: Not quite as profitable as you might think from that "double the industry standard" observation -- but still pretty profitable. In the last four quarters, Saba sported an operating margin of just 3.7% on its trade -- 70% higher than both the industry average and what U.S. pharma distributor Cardinal Health (NYSE:CAH) pulls down. Saba also soundly raps the operating margins of drug distributors Amerisource Bergen and McKesson (NYSE:MCK), which have margins at 1.2% and 1.6%, respectively. So kudos for that. And the stock looks reasonably cheap at 7.5 times earnings.

Time to chime in
On the other hand, if you want to point out that Saba is currently struggling just to break even on a free-cash-flow basis ... or that the company carries a boatload of debt -- well, you'd be right on both counts. Fact is, the company's relatively weak cash flow today gives me pause, and I'm not nearly as excited about the stock as some of our CAPS members appear to be.

Seems to me, what we really need here is a tie-breaker. So what do you say? Will it be thumbs-up or thumbs-down on Saba, kemosabe?