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 -- and whether you should buy 'em:

Companies are selected from the "Institutional Ownership Down Last Month" list published on MSN Money after close of trading on Friday. Recent price provided by Yahoo! Finance. CAPS ratings from Motley Fool CAPS.

Time to panic?
Wall Street traders are selling these stocks in droves, and in many cases, for good reason. For example, just as JPMorgan Chase (NYSE:JPM) predicted, Venezuela devalued its currency last week, shaking the Latin American stock markets and tumbling Mercadolibre for a 17% decline since then. (Strategic shareholder eBay (NASDAQ:EBAY) got off with a 4.4% loss.)

Ener1 suffered similar losses on news that Fisker Automotive had broken off talks for Ener1 to supply batteries to the new carmaker. Meanwhile, Medifast continues to combat accusations of illegal activities at one of its subsidiaries, while MetroPCS struggles with the aftereffects of the Soleil downgrade.

But what's the deal with SXC Health? So far as I can tell, the worst we've heard there is the fact that BMO Capital Markets began covering the stock last week, and called it a "market performer." Is this news bad enough news to justify Wall Street's sell-off? Let's find out.

The bull case for SXC Health Solutions
CAPS All-Star NetscribeSoftwre introduced us to SXC back in March 2007 as a provider of "pharmacy benefit management services and software products to different variety of customers in the pharmaceutical supply chain." SXC's business includes transaction processing, maintenance, systems sales, and professional services. Among these revenue streams, this CAPS member particularly likes SXC's "transaction processing and maintenance" business because the revenues it generates are "recurring in nature" and this "gives a level of certainty to the future cash flows."

Fellow All-Star SapphireSeas once predicted this "[s]mall and nimble company [had]... [l]ots of room for growth" -- and so far, so good. Since recommending the stock back in 2008, SapphireSeas has seen the pick outperform the S&P 500 by more than 200%!

But is the growth spurt over? Wall Street's selling spree suggests it thinks so, but not everyone agrees. Predictably bullish, TexasLonghorns predicts: "Look for this one to be GOBBLED up by a bigger player." (And presumably, "gobbled" at a premium.")

Buy the numbers
Why would a rival want to own SXC Health Solutions? More importantly, why should you want to own it? I'll give you a couple-few reasons.

First, there's the cash. SXC generated $61.5 million in free cash flow over the last 12 months -- Fool-y 71% more cash than it reported as "net income" under GAAP. So while bears will argue the stock looks pricey at a 35 P/E, I'm with TexasLonghorns on this one, taking the more bullish view that the stock sells for only 23 times its free cash flow. (And when you subtract out the firm's $273 million in net cash on the balance sheet, the stock looks even cheaper.)

Second, there's the growth. As several of our CAPS members have pointed out, health care is destined to grow as an industry -- and SXC has already grown a lot as a company. Profit growth has averaged nearly 28% per year over the last half decade, and most analysts expect to see it continue at a 20% clip over the next five years.

Time to chime in
I have to admit, Fools, that all the above has me feeling more than a little bullish about SXC's chances going forward -- and a whole lot more bullish than Wall Street. But just because I think SXC's the bee's knees doesn't mean that you have to buy the buzz. Click over to Motley Fool CAPS now, and tell us what you think about SXC Health Solutions.

Sound off on Motley Fool CAPS: 145,000 of your fellow investors (and more every day) are listening.