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 Thursday. Recent price provided by Yahoo! Finance. CAPS ratings from Motley Fool CAPS.

Wall Street vs. Main Street
Up on Wall Street, traders are dumping these stocks just as fast as they can. But down here on Main Street, each has its fans.

For example, CAPs member PCBuyer calls FiberTower the "Best and Cheapest Backhaul Play in the Market Today!" Large customers include Verizon and AT&T. FiberTower posted 17% revenue growth in its most recent quarterly report. (It did not, however, earn a profit.)

Regarding InterMune, CAPS All-Star zzlangerhans recently addressed the disappointment many investors felt when the FDA last month told InterMune to get more data on its Esbriet lung disease treatment:

the market over-reacted to the FDA Complete Response. So the company took a shot at approval on shaky data and they missed. It isn't their fault ... They have cash, they'll run another phase III trial, the share price will run up over 20 prior to the topline data.

Brave words in support of a stock that fell 80% after the FDA decision. A more-than-100% run-up from today's price would go a long way toward healing that damage.

Unfortunately, FiberTower and InterMune get only supbar ratings of one and two stars, respectively, from the CAPS community. This week's top, five-star rating goes to a stock that many investors may not have heard of.

Genoptix
What is Genoptix? Think of it as a small-scale, specialized version of LabCorp (NYSE: LH) or Quest Diagnostics (NYSE: DGX). A medical diagnostics company, Genoptix focuses on designing, conducting, and evaluating blood tests for hematologists and oncologists who treat bone marrow and blood-based diseases, especially in cases of cancer.

The stock got sold off pretty hard early last month after reporting revenue growth that fell short of Wall Street expectations alongside increased sales and marketing costs that helped to shave 10% off the company's net profits.

Yet according to CAPS All-Star Beorn10, this is more a case of the company failing to "manage analyst expectations very well," and less a problem of growth. Sales for the quarter were up 21% year over year, and Beorn10 argues the company could still "morph into a growth stock if they continue to show good profitability."

Remember that this is just one quarter's results we're talking about. As CAPS member cumbucotrader points out, historically, "This diagnostic testing company is growing revenue at 30-40% per year, and still has plenty of room to grow within the US." Also historically, All-Star bg11235 notes that return on assets has been in excess of 15% over the past three years. And the company has a "relatively sound" balance sheet to support future growth.

Buy the numbers
"Relatively sound?" I'll say! With more than $132 million in the bank, cash backs up fully 29% of Genoptix's market cap. While the first quarter did feature a sharp rise in capital spending, the company still managed to generate $20 million in free cash flow over the past 12 months.

Weighed against the company's $308 million enterprise value, that works out to a mere 15-times multiple to free cash flow -- not bad for a business that most folks on Wall Street expect to grow in excess of 23% per year over the next half-decade. (Sadly, cancer remains a growth industry.)

Foolish takeaway
Last quarter's disappointment notwithstanding, Genoptix looks to me like a stock with a future. The balance sheet seems rock solid, the valuation looks right, and until we find a silver bullet to cure cancer once and for all, I see little prospect for decreasing demand for the kinds of services Genoptix provides.

But that's just my opinion. If you've got a different view of Genoptix, here's your chance to tell us all about it. Click over to Motley Fool CAPS now, and sound off.