Contrarian Shopping List

"We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful." -- Warren Buffett

Out of the quadrillions of quotations quarried from that most loquacious of quotationists, this one holds a special place in the hearts of Foolish investors. Are you looking to "buy low" so as to later "sell high"? If so, your best chance of getting that initial, low entry price comes when panicked sellers are unloading their shares at whatever price is on offer.

In today's column, we search the ranks of Wall Street's motivated sellers and note which stocks they're most frantic to unload. Therein may lie the makings of a contrarian investor's shopping list. But don't just take my word for it. Before you decide to go in through Wall Street's out door, check your thinking against the collective intelligence of Motley Fool CAPS investors.

Today's contenders include:

The problem with pessimism
The problem with going against the grain on Wall Street is that when professional traders get pessimistic, their grim outlook can become a self-fulfilling prophecy -- at least in the short term. The more desperate institutions become to abandon a stock, the lower the price they'll accept to get rid of it. And as their "ask" prices drop, the "bid" prices of buyers will fall in tandem, creating the very price decline that they feared in the first place.

Until the selling stops.

In through the out door
When it will stop is anybody's guess. But until it does, savvy investors have a chance to "get greedy" and snap up some bargains from these fearful sellers (if bargains they truly be).

As luck would have it, investors do see a bargain this week, in the form of the disturbingly named "CDC Corp." But don't worry. Despite the moniker, this company has nothing to do with communicable diseases or the Centers for Disease Control, and everything to do with selling enterprise software and online games in the world's biggest market.

It hasn't been doing such a great job of this over the last couple of quarters, however. As you may have noticed, CDC reported its earnings last week -- earnings that fellow Fool Rick Munarriz roundly panned. But there are still plenty of Fools feeling optimistic about CDC. Let's find out why as we examine ...  

The bull case for CDC

• CAPS All-Star TMFYoung is bullish on the firm's gaming division: "I can't wait to see the numbers for the Special Force the new first person shooter game they launched in June. The beta test had 1.64 million users, that number alone is a larger subscriber base than some games ever achieve. I recently watched a great documentary on the video game industry in Korea. The Korean people watch video game matches on national television and pack stadiums like we do here for sporting events. ... CDC is poised to take advantage of this multi-national craze across the Far East."
  
  (Incidentally, here's how those Special Force numbers turned out in the most recent quarter: "Special Force, the first free-to-play, pay for merchandise FPS (first person shooter) game in China, experienced growth in key categories during November compared to October 2007, including average daily revenue growth of 51 percent; growth in total registered users of 23 percent; growth in peak concurrent users (PCU) of 14 percent; and growth in average concurrent users (ACU) of 12 percent.")
  
• Speaking of games, NeroSagetrade observes: "CHINA will soon be splitting off its gaming division and creating two companies. Finally investors will understand what each segment does well and it will probably add 20% to each underlying company on that facet alone. Nearing technical support levels here and trading at only 10-11 times forward numbers. Cant argue against the stock buyback here either."
  
• What buyback, you ask? vaulegrowth addressed this in a September pitch: "I love that the company is buying back shares. It sounds like the recent buyback was averaged in at the $8.40 range. If the company is buying back because they think it is undervalued, which they said point blank in the recent call, I would like to think they are right. Also in the recent earnings call the CEO stated that he put his money where his mouth is and bought shares for himself. I like companies where the CEO is buying and not selling. In addition, company insiders have purchased approximately 200,000 shares, at a total value of more than U.S. $1.4 million, since September 7."

Unlike rivals such as Shanda Interactive (NASDAQ:SNDA) and Netease.com (NASDAQ:NTES), two rough quarters have pushed CDC to a loss over the last 12 months. If you believe the analysts, though, the company should return to profitability next year -- and based on their projections, the stock carries a "forward" P/E ratio of just 9. If their projections of 21% annual profits growth are realistic, then CDC looks tremendously undervalued today.

Time to chime in
Of course, the aim of this column isn't just to tell you what I think about CDC Corp. -- or even what the other CAPS players are saying. We also want to hear your thoughts on the company. CDC has swung and missed twice already -- do you expect it to strike out this quarter, or turn into the home run that this valuation suggests? If you've got an opinion, we've got a place to voice it.

Motley Fool CAPS: It's fun, it's free, and it just might make you famous.