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.

Up on Wall Street, the pinstripe-and-wingtip crowd can't sell these stocks fast enough. Whereas down here on Main Street, we mere Fools are wondering what all the fuss is about. You see, the thing is that we like most of these companies.

Myriad, Spartan, Pain Therapeutics -- why, even NovaGold, profitless wonder that it is, gets a three-star rating and a pass from CAPS members! So if Wall Street's selling, we'll be happy to take these stocks off their hands. And our favorite of the five is ...

Pharmaceutical Product Development
Score this company 0 for imaginative naming, but 10 for clarity in branding. There's little mystery in what PPD is about -- helping Big Pharma customers like Merck (NYSE:MRK) and Johnson & Johnson (NYSE:JNJ) discover and develop new drugs. And while the company just came off a rough quarter, CAPS All-Star stockpicker and all-around good Fool TMFBiologyFool is convinced that "[o]utsourcing R&D will pick up again."

Once it does, PPD should benefit from the revived market. Fellow All-Star TMFHelical calls PPD a "[v]ery well run CRO [contract research organization] struggling through industry consolidation and funding issues. Outsourcing is still a trend embraced by pharma development and growth will return here."

And why might PPD benefit even more than others? Yet another of our All-Star players -- greenwave3 -- explains that the firm boasts a history of "[g]rowth, cash on hand, no debt, and a multi-billion $backlog. Big pharma will need players like [PPD] to help refill their expiring line of drugs."

I agree.

Mind you, I'm no expert on the nitty-gritty of the pharmaceutical R&D outsourcing industry. But just looking at PPD's numbers tells me there's something to this stock. PPD sells for a 13 P/E right now. This compares favorably to the 12% annualized five-year growth that Wall Street expects it to produce and ... even more favorably to the 15% annual growth that the company has already produced over the last five years.

As fellow Fool Robert Steyer described last week, much of the present pessimism about PPD concerns "R&D contract cancellations" that totaled $212.9 million last quarter. Robert characterizes this as "a troubling sign of R&D retrenchment."

But seeing as it has helped push the stock down to a multiple of just 13, despite many of our very best investors telling us that the "retrenchment" is only temporary and that growth is certain to resume in future quarters ... I have to say that I'm not feeling particularly "troubled," myself. Fact is, I'm actually feeling pretty grateful that Mr. Market is overreacting to these temporary troubles.

Time to chime in
Are you? Or on the contrary, do you think the retrenchment in R&D spending is something more than a short-term issue at Pharmaceutical Product Development?

Whichever way you come down on the issue, make sure your first move is to come over to Motley Fool CAPS and share your insight. We're listening.