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.

Wall Street's hotshots are selling these stocks hand over fist, but individual investors remain undaunted. By large margins, CAPS members continue to believe that each of the stocks in the above list will outperform the market -- but one stock clearly tops the list: China Security & Surveillance Technology.

If ever there were a stock whose name screamed "No-brainer!" this one's it. China. Communist state. Huge security apparatus. Hello? But surely there's more to the China Security & Surveillance story than just the name. Let's get a few more details, as our CAPS members lay out for us ...

The bull case for China Security & Surveillance
I'm not the only Fool capable of seeing the obvious. PrincetonAl wrote in June: 

Private security and surveillance firm in the largest police state in the world? Oh, the irony. ... reasonable P/E in a long term macro trend (security) in a long bull market (china). Maybe its been levered a bit to build out relative to the Olympics, but seems like global security isn't going away anywhere, and China certainly doesn't show any signs of needing it any less than elsewhere.

In June, Jupiterking called China Security:

... the leader in providing surveillance technology in China. ... the Chinese people are getting richer, and the more assets they have--- the more they will want to keep them safe. Whether they are business owners, new millionaires, or common folks, they will want and need security for protecting their properties. ... As a result of the country's phenominal economical growth---[China Security & Surveillance's] growth should be spectacular for the next few years.

Finally, the Fool's own TMFMossBeliever advised in June that when you think China Security: 

Think China Fire & Security (NASDAQ:CFSG), but in the surveillance industry. The combination of China's Safe City and protectionist policies will be a boon to this company. They are also active in acquisitions to improve their technology portfolio and vertically integrate.

Behind the opinions
OK, so a lot of Fools buy the story on this "story stock." But do the numbers back it up? Is China Security & Surveillance a -- ahem -- safe investment?

I hesitate to call any investment in China "safe," full stop. But this one does look to have a fairly wide margin of safety. As big as the growth expectations alluded to above may sound, it's still pretty amazing to see Wall Street's official projections here. Analysts expect China Security to grow its earnings at nearly 29% per year each year over the next half-decade. For context, that's faster than Wall Street is predicting for perpetual growth stock Google (NYSE:GOOG). It's way, way faster than actual China Security competitors like Honeywell (NYSE:HON) or General Electric (NYSE:GE)

What P/E would you pay for this kind of growth? Twenty-nine? Twenty? How about ... six? Because that's all that an investment in China Security & Surveillance will set you back -- a mere six times earnings. So like I said at the beginning: No-brainer.

Time to chime in
Then again, if an investment seems too good to be true, there's always at least the distant chance that it is. In China Security's case, the big risk I see is that the company generates no free cash flow whatsoever now to support its apparent dirt-cheap valuation.

Now, maybe that worries you. Maybe not. Either way, we'd love to hear your thoughts on the company, and on whether it's truly as obvious a bargain as it seems. If you've got an opinion, we've got a place to voice it: Motley Fool CAPS.