"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, and buyers' bid prices 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:


Recent Price

CAPS Rating (out of 5)

Wonder Auto Group (Nasdaq: WATG)



Bank of Ireland (NYSE: IRE)



Headwaters (NYSE: HW)



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 vs. Main
Wall Street and Main Street run parallel this week, as lay investors refuse to buy in to the professionals' pessimism. The pinstripe-and-wingtip crowd may have fallen out of love with these stocks, but individual investors' faith remains unshaken.

Take Bank of Ireland, for example. The common wisdom these days seems to run something like this: Ireland is one of the PIIGS. Irish stocks are going to get slaughtered, so sell 'em. But CAPS member MikeBobulinski begs to differ: "Much like the banks in the US that survived the downturn and returned to higher price per share, I think IRE is positioned nicely to rebound. Less than a year ago it was trading up over $20 per, so I am thinking we have more upward potential than downward."

Or consider the long-term case for Headwaters. While acknowledging that it's been "hit by the housing downturn," grseidel believes that "their 'green' technology, especially for coal," will come back into favor as the economy improves. Ultimately, grseidel believes the stock "might hit $16/share in the next year."

As well-liked as these two stocks are, however, they're dwarfed in popularity by today's lone five-star stock, a powerhouse of the Chinese automotive industry. Wonder what all the fuss is about at Wonder Auto Group? So do I -- so let's find out.

The bull case for Wonder Auto Group
As CAPS All-Star jamespeer informs us: 

China's auto industry is … growing at an enormous rate. The country has replaced the USA as the number 1 market for auto sales in the world, and those numbers are growing. ... As per capita income has increased and continues to increase in China, the rate of people converting their bicycles to auto's is incredible, so despite the recent fears of "over-heating" in the Chinese economy I don't think we can dispute that growth is still likely to be in the double-digit region for the next 1-3 years at least.

Adding some numbers to the picture jamespeer paints, Lants tells us: "China's auto industry grew 55% in February. WATG is quickly growing company in a quickly growing industry in a quicklygrowing country." (I'd also point out that judging from Berkshire Hathaway's (NYSE: BRK-B) investment in China's BYD, none other than uber-investor Warren Buffett agrees with our Foolish commentators on the attractiveness of this sector.)

And within this industry, and this country, megalong points out: "Wonder Auto is the number 2 alternator and starter manufacturer in China."

Pencils out
OK, that's good for a start. Now let's take out our No. 2 (pencils) and work a little math -- see if we can figure a fair price for this little auto parts maker with the big potential. Right now, Wonder Auto is selling for about 8 times next year's earnings estimates, and 1.4 times current book value. For comparison, here are how some other parts companies in the U.S. are doing.

  • Dana Holding (NYSE: DAN) sells for just over 9 times next year's projected earnings and carries a price-to-book value ratio of 1.8.
  • Lear's (NYSE: LEA) forward price-to-earnings ratio approaches 11, and from a price-to-book perspective, its 1.6 ratio also appears more expensive than Wonder.
  • Moving further up the ladder, in terms of size, Johnson Controls (NYSE: JCI) likewise carries a forward P/E ratio of 11, and it sells for twice book value.

Time to chime in
When you combine all of this with Wonder's superior growth rate, projected at 19% per year over the next five years, it's no surprise Fools are so optimistic about Wonder's chances. On the other hand, more skeptical investors (of which I'm one) can point to the company's inconsistent history of producing free cash flow as a reason to avoid the stock.

But here's what we'd really like to know: Which side of the argument do you come down on? Is Wonder the next great investing opportunity, or do you view these numbers as too good to be true? Head over to Motley Fool CAPS now, and tell us what you think.

Fool contributor Rich Smith  owns no shares of any company named above. You can find him on CAPS, pontificating under the handle TMFDitty, where he's ranked No. 447 out of more than 165,000 members. Berkshire Hathaway is a Motley Fool Inside Value selection and a Motley Fool Stock Advisor recommendation. The Fool owns shares of Berkshire Hathaway and has a disclosure policy.