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:

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.

So here we have five stocks that professional investors are selling with abandon. Yet in every single case, the verdict of CAPS is clear: These are great companies.

And yet, although each and every stock on today's list scores above-average in the estimation of CAPS members, only one gets top marks. That's the one we'll examine today, as we delve into ...

The bull case for eTelecare Global Solutions

• CAPS All-Star Gtrinvestor introduced us to this company back in July of last year: "Basically, this is a call center company based out of the Philippines. ... they actually produce what many copmanies in Biotech don't know how to say, and that is 'cash'. ... Now they tend to spend a bit of that in capex (about what they make in operating cash), however, being a fast growing start-up, I am willing to give them some slack. Company is still under $1 B in market cap, so lots of room to grow in what is clearly a large industry which India seems to now be moving away from."
• Speaking of India, geraldn100 chimed in in December: "On macro-side of things, we see that India's outsourcing industry is running up against rising costs and a falling dollar. They are actually beginning to outsource their own work to other countries, including SE Asia and Pacific nations (like the Philippines). ... On the micro-side, we see that [eTelecare] is a start-up with a low P/E and PEG ... and essentially no debt. They have call centers in both the Philippines and U.S... Filipinos generally use American English rather than the British dialects."
• A point that also caught yattaboy's ear over a year ago: "Want to speak to an overseas rep you can understand? [Dell (NASDAQ:DELL)] and others have heard you. Thinly traded call center provider is just hitting threshold for institutions to buy it."

In addition to Dell, eTelecare also counts such big-league names as American Express (NYSE:AXP), Time Warner's (NYSE:TWX) AOL, and Sprint Nextel (NYSE:S) among its customers.

The other observations made by our CAPS members, dated though they may be, likewise ring true today. eTelecare still carries essentially no debt on its balance sheet. At $132 million and counting, it's way, way below $1 billion in market cap. And most important of all, it's cheap as all get out -- at least on the surface.

With a 9.3 P/E and 20% estimated long-term growth rate, eTelecare's PEG ratio works out to a mouth-watering 0.5 -- suggesting 100% upside before the stock reaches "fair value." That said, if you prefer to follow Wall Street's lead and bet against the company, you've got a basis for that approach as well. Remember what Gtrinvestor said about eTelecare's capex? Well, it's true. In most years, capital expenditures eat up all of eTelecare's cash flow and more. At last report, the trailing-12-month figures had the company burning (a modest amount of) cash.

Time to chime in
Personally, that lack of free cash flow suffices to scare me away from the stock, but perhaps you are not so, well, fearful? If what you've read so far is enough to get you feeling greedy, come on over to CAPS and tell us why.