"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:


Recent Price

CAPS Rating (5 max):

Natus Medical  (NASDAQ:BABY)



Luminex  (NASDAQ:LMNX)






Zions Bancorp (NASDAQ:ZION)






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 as of the same date. CAPS ratings from Motley Fool CAPS.

Professional investors are unloading these stocks just as fast as their hot little hands can hit the "sell" button. By and large, CAPS members agree, panning four of the five companies. But in one notable case, they disagree strongly: Natus Medical (which is also, I should point out, a Motley Fool Hidden Gems recommendation.)

Why do Fools refuse to put "BABY" in a corner? We're about to find out, as we unswaddle ...

The bull case for Natus Medical
Astromac introduces us to the company in this October pitch: 

Natus' primary products serve a solid growth industry--newborn hearing testing. Roughly half of their revenue relies on capital purchases from hospitals--a potential weak spot given most hospitals weak cash positions in this economy. However, they are focusing their revenue growth on disposable products which bring recurring revenue that is largely safe even in economic downturns.

CAPS All-Star HLChin agrees, pointing out several additional points in Natus' favor: 

Dominant 80% share of the infant hearing screening market ... 95% of babies are screened currently in United States, only 30% in Western Europe ... Germany recently adopted newborn hearing screening as a national standard. 

(Which suggests sales growth potential as Natus expands internationally.)

Finally, tedamerica suggests a macro factor that could give Natus a boost here at home: "Obama admin means children funding. Who stands to benefit? Baby does! (Natus medical)." And if that's not enough for you, tedamerica adds: "This is also a good takeover candidate."

Ah, but is it a good candidate for your portfolio?

Here's what I think
Fortunately, I agree with our CAPS members today. Sure, the financial crisis has taken a toll on medical-products makers of late. Fears that hospitals will cut spending on their wares sent the stocks of Medtronic (NYSE:MDT), Stryker (NYSE:SYK), and Boston Scientific (NYSE:BSX) tumbling in recent months. Even mighty Johnson & Johnson (NYSE:JNJ) found itself the involuntary recipient of a 15% haircut since September.

But while the short term may look bleak, I'd argue that the financial crisis has not rendered these companies worse investments -- it's just made them cheaper ones. Natus Medical in particular trading for just 17 times trailing earnings today, despite analysts' general agreement Natus will increase its profits at more than 21% per year over the next five years. Plus, with nearly $70 million in the bank as it goes through this recession, I have little doubt that Natus will still be around to enjoy all of that growth when the crisis ends.

Foolish takeaway
Recessions come and go. This financial crisis, too, shall pass. But don't you let the chance to buy Natus at a bargain price pass you by.

(Disagree? Feel free. Come on over to Motley Fool CAPS and tell us why.) 

Beginning Jan. 12, 2009, Fool co-founder David Gardner, Jeff Fischer, and their Motley Fool Pro team will accept new subscribers to their real-money portfolio service. Motley Fool Pro is investing $1 million of the Fool’s own money in long and short positions in a range of securities, including common stocks, put and call options, and exchange-traded funds (ETFs). They also incorporate proprietary CAPS "community intelligence" data into their research. To learn more about Motley Fool Pro, and to receive a private invitation to join, simply enter your email address in the box below.

Fool contributor Rich Smith does not own shares of any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 1796 out of more than 125,000 members.

Natus Medical is a Motley Fool Hidden Gems selection. Johnson & Johnson is a Motley Fool Income Investor pick. The Fool owns shares of Stryker. The Fool's disclosure policy can hear things just fine.