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 traders are playing "hot potato" with these stocks, and no one wants to get caught holding the spud. Down here on Main Street, however, Fools know investing is serious business -- and refuse to play that game.

While no one's overly enthusiastic about these companies, the three-star ratings being meted out to most of these stocks on CAPS tell us investors aren't ready to panic just yet. In fact, in one case, a four-star rating suggests it just might be time to start buying again.

Is that the right decision? Read on and find out, as we explore ...

The bull case for RF Micro Devices
One of our very best investors, CAPS All-Star ipfmanager, introduced us to RF Micro just this past summer: "[RF Micro Devices] is a world leader in it's industry. ... [T]hey make amps for cell/smart-phones. They used to have 1 amp per cell phone. Now they use 4 amps in blackberry's, maybe even 6 in the 4/5g phones. So they're basically increasing their sales by 400% while trimming their bottom line by 20%."

Fast forward a couple of months, and j7777k confirmed for us that yes indeed, RF Micro's: "Revenue, gross margins, and cash flow increasing." Plus, it's got: "Plenty of fab capacity to expand revenue as the economy turns around."

And why might RF Micro benefit from a general turnaround? cassidy3 explains: "Do you know of anyone who is using a cell phone that will not up grade to G3 and then G4 for faster download speed as voice and video communications continue to grow [RF Micro] is used in every iPhone BlackBerry Nokia (NYSE:NOK)... all Manufacturers use [RF Micro] components."

Of course, that's not always a good thing -- being all things to all people. Last week, a disappointing earnings report from RF Micro client Nokia helped sink the supplier's stock.

But on the plus side, if the logical beneficiaries of Nokia's weakness -- Apple (NASDAQ:AAPL) and Research In Motion (NASDAQ:RIMM) -- are also RF Micro customers, then maybe it won't make a difference to the chipmaker. Maybe this is a situation where "selling shovels to goldminers" really is the best business model. No matter who strikes it really rich, you know the shovel-seller's going to come out all right.

Tune in to value
And, in fact, RF Micro is doing pretty well. Although goodwill impairments taken in last year's fiscal third quarter have the stock currently reading "unprofitable," RF Micro actually generated more than $121 million in free cash flow over the last four quarters. Assuming that's not some kind of a fluke, this means RF Micro trades for approximately 10 times the amount of cash it can generate in a year right now. That's not bad for a company that most analysts expect will grow its profits at 15% over the long term. Not bad at all.

Time to chime in
Of course, like the prospectus says: "Past performance is not always indicative of future results." Just because RF Micro made $120 million in free cash over the last year doesn't mean it's going to do so this year, or that it will grow as expected in years to come. (The future's uncertain, doncha know.)

So while I am personally inclined to take a gamble on RF Micro, and think the odds favor success, you are certainly free to disagree. If you think Nokia's earnings report looks scarier for RF Micro shareholders, here's your chance to tell us why.

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