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.

Up on Wall Street, the pinstripe-and-wingtip crowd can't sell these stocks fast enough. Whereas down here on Main Street, we mere Fools are wondering what all the fuss is about. You see, the thing is that we like most of these companies.

Akamai, Hansen, DRDGOLD -- why, even CardioNet, with its high P/E and cash-burning ways, gets a three-star rating and a pass from CAPS members! So if Wall Street's selling, we'll be happy to take these stocks off their hands. And our favorite of the five is ...

China Medical Technologies
In May daisytheblacklab introduced us to China Medical as a "[f]ast-growing medical device manufacturer in the world's fastest growing economy, in the health care field which is going to be one of the Chinese gov't's major priorities for the next 10 yrs." Daisy thinks this stock has "Great potential."

CAPS All-Star Trimalerus agrees. Writing in April, Trimalerus argued that China Medical will "benefit from China's Stimulus package ... Health care key to China's economic future. It's a good bid to outperform even at twice current price."

As does fellow All-Star Seansonfire: "China Med has all the makings of a great long term growth company. ... Why you should buy [China Medical]: 3% Dividend ... Beat Earnings Estimates the past 4 Quarters (25% Growth Rate) ... China is getting old and wealthier."

I won't quibble with the macro arguments. Although, by its own admission, China Medical faces significant competition from the likes of Roche, Bayer, and Johnson & Johnson (NYSE:JNJ), China is certainly one of the great growth stories of the 21st century, and China Medical is playing on its home turf there. But I do wonder how so many people can express such confidence about the company's performance and the stock's price.

After all, the company hasn't given us a detailed update on its financials since early March -- in an SEC filing describing its results through the end of 2008. An internal investigation into alleged corruption at the highest officer ranks limited the firm's June 2009 update to a few lines of unaudited information (with supplemental data not due out until later this month, and a full 20-F filing arriving by the end of September.)

Granted, the claims made in China Medical's recent filing suggest that growth continues at a rapid rate, with revenue rising 51% for the full fiscal year, and pro forma income up 79%. Also granted, China Medical's last detailed report showed the company generating significant cash from operations ($17.7 million in the third quarter) and boasted of nearly $285 million in cash. Still, the company has $425 million in debt.

But lacking up-to-date information on the company's financials, I would be careful about putting too much faith in the company's "beating earnings," about the size of its P/E ratio, and most especially its cash position. Personally, I'd think that a better bet on the growth of health care in China would be something like Mindray Medical (NYSE:MR), which boasts similar growth rates, more complete and accessible financial information based on up-to-date SEC filings, and most importantly -- hasn't been distracted fending off corruption allegations. Sure, that investigation has now been completed without finding the alleged wrongdoing, but such events have a nasty habit of sidetracking management.

Time to chime in
But hey, that's just my opinion. Maybe your level of risk tolerance "goes to 11," and you see opportunity to profit when Wall Street recovers from its jitters about China Medical. If that's the case, then we'd love to hear more about why you like this company. Click on over to Motley Fool CAPS, now and share your insight. We're listening.