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. And they may be right. Down here on Main Street, we've given these same stocks a lookover, and we sure don't like what we see: Not only have none of these companies turned a profit in the past 12 months, none of them are expected to earn a profit in the next 12 months either. And seeing as the whole business of business is supposed to be turning a profit, there's real reason to doubt why anyone would want to own a piece of any of these "businesses" at all.

So why, you might ask, do Fools continue to insist on backing Take-Two Interactive? It's the sole above-average rank stock on today's list ... and the subject of today's column.

The bull case for Take-Two Interactive
There's no two ways about it -- Take-Two's fourth-quarter earnings warning was a disaster. But CAPS All-Star withoutlimits tried to take the sting out of it with a bit of levity in his pitch last week. Post-sell-off, withoutlimits declares Take-Two now officially "[c]heaper than Madonna in the 90's."

Fellow All-Star typeoh agrees, arguing: "Mr. Market does not fully appreciate the power of its Grand Theft Auto brand. ... Yes, this year will be bad. Yes, they will lose money. No, they are not going out of business. Wait until the next GTA release comes out and blows analysts away, then all of a sudden you will see the love return."

And you may not have to wait even that long. Yet another All-Star investor, rhovero this time, points out that amid all the bad news in this month's earnings report, we also received the reassurance that "BioShock2 is still on track for a Feb. 9 release date."

Take a second look at Take-Two
Does the hope of profit to be earned from this single, solitary title "tomorrow" support a decision to buy Take-Two today? I hesitate to contradict so many Fools of such high caliber, each of whom seems convinced there's value to be found in Take-Two stock, but ...

I do. Disagree, that is. You see, it's not just this year that Take-Two let us down. Fact is, over its past five full fiscal years, this company has managed to generate a grand total of less than $82 million in free cash flow. That's an average of just over $16 million per year. And if I might be so bold as to suggest it, today's market cap of $643 million seems too much to pay for too little profit – about 40 times Take-Two's average annual "take."

Time to chime in
Now I readily admit I could be wrong on this one. Electronic Arts (NASDAQ:ERTS) was certainly willing to pay more than Take-Two costs now, to buy the company last year. Fellow Fool Rick Munarriz has suggested that at that time the company thought EA would come back to the table, or even that a company such as Microsoft (NASDAQ:MSFT) or Activision Blizzard (NASDAQ:ATVI) might make an offer.

All I know is that at this price, I'd call any such buyer a fool (small "f") for doing so.

But hey, feel free to disagree. If you've got a contrary take on Take-Two, have at it. Defend your stock. Sound off. Tell me why this stock's a buy.

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