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. 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:

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.

Has Wall Street got a deal for you!
Up on Wall Street, investment bankers wouldn't own these stocks if you paid 'em to. (In fact, they'd much prefer that you paid 'em for you to own them.) But it seems in most cases, Fools aren't taking the bait.

Can you blame us? Drywall in a housing downturn? A bank in a banking bust? A silver miner that can't earn a profit even when silver prices reach for the stars? And ... DryShips? I mean, who buys this stuff?

There's one stock on the list, though, where CAPS members are willing to take Wall Street up on its offer. That would be Hansen Medical, the robotic catheter company brought to you by the makers of Intuitive Surgical (NASDAQ:ISRG). But should we really be saying "domo arigato" to Wall Street, for helping to depress the price on Mr. Roboto? Let's find out, as we examine ...

The bull case for Hansen Medical
CAPS member heath50 exulted last month, calling Hansen "Undervalued" based on its having "just won $36MM suit v. LUNA." (And yes, that would be great news -- but for the fact that Luna Innovations, Inc. has less than $13.2 million in cash. The chances of it being able to pay Hansen $36 million aren't "slim to none" -- they're none to none.)

Better news was last month's announcement -- brought to our attention by olegmi -- that Hansen has "signed a deal with GE [ (NYSE:GE)] Health care. It will boost their sales all over the world." Hansen's sales, apparently. Around about the same time Hansen scored this coup, CAPS All-Star jlmjlm77 noticed significant "inside buying" at the company, and gave Hansen the thumbs-up for it.

Problem is, just as with heath50's news on the court victory, there's a bit more to the "inside buying" story than meets the eye. On the one hand, yes, insiders upped their stake in the company by 12% over the last six months. On the other, the shares being bought were part of a follow-on share offering that Hansen conducted in mid-April.

The offering was Hansen's latest effort to plug the hole in its balance sheet, which has been bleeding cash at an increasing rate -- bad news in and of itself. Worse news, though, is that Hansen chose one of the worst times imaginable to raise capital, pricing its share issuance within just a few cents of its lowest stock price ever.

Granted, that was good news for the insiders, who managed to snag shares in this offering at such an ultra-low price. But what about everybody else? What about Hansen's outside investors, who just got the stock dilution, and were unable to participate in the offering at its bargain-basement price? I rather doubt they were pleased with the development.

Foolish takeaway
Suffice it to say, therefore, that I'm not at all impressed with Hansen management. But, if possible, I like the stock even less. What we have here, folks, is:

• A firm that Wall Street thinks will struggle to post even 10% annual growth.
• A massive cash burner that has to dilute shareholders just to keep itself solvent.
• An unprofitable firm selling for more than 6.5 times sales.

But hey, that's just my opinion. I could be wrong, and in fact, more than 470 investors on CAPS think I'm out of my raving mind about Hansen. Are you one of them? Then here's your chance to knock a hole in my argument big enough to drive a robot through. Click on over to Motley Fool CAPS and tell us what you think.

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