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Fearful Stocks for Greedy Investors

By Rich Smith - Updated Apr 5, 2017 at 7:51PM

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A Fool peers in through Wall Street's out door.

"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:

Company

Recent Price

CAPS Rating
(5 stars max.)

Hansen Medical (NASDAQ:HNSN)

$7.00

****

Lloyds TSB Group  (NYSE:LYG)

$7.37

****

Satyam Computer Services  (NYSE:SAY)

$8.41

****

General Motors  (NYSE:GM)

$3.60

*

XL Capital  (NYSE:XL)

$3.39

*

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.

Wall Street's hotshots are selling these stocks hand over fist, and in a couple of instances, CAPS members think they're right to do so -- but in three cases, we disagree. Not coincidentally, the three stocks that investors remain bullish about are all  Fool recommendations: Motley Fool Rule Breakers recommendation Hansen Medical; Lloyds TSB, which is an Inside Value pick; and Satyam, which got the nod from Stock Advisor.

With so many of our own favorite stocks to choose from this week, which one will we profile today? How about the least obvious bargain of the lot?

The bull case for Hansen Medical 
We begin with a brief introduction from fburks in September: 

This is a company started by Intuitive founder Fred Moll, and the robotic catheter system is currently being used for endovascular procedures. This is a growth industry, but the more exciting prospect is the newer applications of this technology in other fields. A recent article in Urology highlighted an animal study using the robotic catheter system in the ureter for treatment of kidney stones and other conditions. I also think this technology will have great application for NOTES (Natural Orifice Transluminal Endoscopic Surgery) or incisionless surgery.

Robotic catheters, huh? Seems a scary prospect, but CAPS All-Star sandvig argued earlier this year that it's a prospect with a future (pun intended): 

Look at what Americans eat, and you will see the early ripples of a tsunami of clogged arteries. Wouldn't it be nice to have the equipment to go into the arteries and clean out the residue of french fries? [Hansen] recently received FDA clearance to market their 3-D imaging modules. It is always helpful to receive permission to sell your product.

And finally, a word of caution from fellow All-Star Persuter, who pointed out in May that: "Hansen's got a scary income statement, no doubt, but this is a company you can get some real percentage growth out of if their devices are a hit. More established players like St. Jude (NYSE:STJ) will outperform, but not to the same level."

Speaking of which, Hansen has actually teamed up with St. Jude to co-market the former's Sensei product with St. Jude's EnSite System. While certain Hansen skeptics argue that Sensei is inferior to rival Stereotaxis's (NASDAQ:STXS) Niobe system, the alliance with St. Jude offers a big vote of confidence in Hansen's favor.

Still, what was it that Persuter was saying about a "scary income statement?" That didn't sound good -- and it isn't. Revenue growth tripled at Hansen in the most recent quarter, but the sad fact remains that Hansen is still losing money, and burning cash, at a frightening pace. Granted, if you ask our Rule Breakers team, I'm certain they'll tell you this is exactly what we expected from Hansen. Companies operating on the bleeding edge of technology tend to -- well, bleed -- a lot of red ink in their early stages. Unless they get the wound bandaged quickly, early investors can experience a lot of dilution between their initial investments in a start-up, and the happy day when the business proves itself viable.

And that's exactly what I expect out of Hansen. Right now, the company's burning through nearly $64 million in cash per year -- and accelerating. Unfortunately, Hansen only has $46 million in cash available. At the rate things are going, I would expect Hansen to run out of cash within three quarters, if not sooner. When it does, it must either magnify its current debt load or dilute shareholders with a follow-on offering of stock.

Time to chime in
To me, that's not a happy prospect -- and it offers little reason to want to own the stock today. But that's just my opinion, and you should feel free to differ. If you've got a different view of where Hansen is heading, please don't keep it to yourself. Drop by our CAPS page for Hansen, and tell us why you see a future for this stock.

On Jan. 12, 2009, Fool co-founder David Gardner, Jeff Fischer, and their Motley Fool Pro team will accept new subscribers to their real-money portfolio service. Motley Fool Pro is investing $1 million of the Fool's own money in long and short positions in a range of securities, including common stocks, put and call options, and exchange-traded funds (ETFs). They also incorporate proprietary CAPS "community intelligence" data into their research. To learn more about Motley Fool Pro, and to receive a private invitation to join, simply enter your email address in the box below.

Fool contributor Rich Smith does not own shares of any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 559 out of more than 125,000 members.

Lloyds TSB Group is a Motley Fool Inside Value selection. Hansen Medical is a Rule Breakers pick. Satyam Computer Services is a Stock Advisor recommendation. The Fool has a disclosure policy.

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Stocks Mentioned

Hansen Medical, Inc. Stock Quote
Hansen Medical, Inc.
HNSN
General Motors Company Stock Quote
General Motors Company
GM
$38.46 (1.34%) $0.51
St. Jude Medical, Inc. Stock Quote
St. Jude Medical, Inc.
STJ
XL Group Ltd Stock Quote
XL Group Ltd
XL
Lloyds Banking Group plc Stock Quote
Lloyds Banking Group plc
LYG
$2.22 (-0.45%) $0.01
Stereotaxis, Inc. Stock Quote
Stereotaxis, Inc.
STXS
$2.21 (-0.45%) $0.01

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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