Contrarian investors go against conventional wisdom. They separate themselves from the herd, tuning out the "noise" from financial headlines. Instead, they share the investment philosophy of Warren Buffett and think of themselves as buying solid businesses rather than shares of stock regardless of recent market volatility.

Sometimes they're right. Successful contrarians invested in companies like Dell (NASDAQ:DELL), Best Buy (NYSE:BBY), and (NASDAQ:AMZN) when they were at their lows in late 2000 and 2001 and would have realized significant returns if they held them until today. They are buying good companies in bad times and are more interested in the steak than the sizzle.

palmOne (NASDAQ:PLMO), the handheld device and smartphone maker, may represent an opportunity for contrarian investors. Shares are down about 45% since the December 16 earnings call for its fiscal second quarter.

What's happening? It's been a good news/bad news story for palmOne over the past few months, with bad news slightly ahead.

While global smartphone growth will be strong at around 50% between now and 2008, according to IDC, the PDA market has declined for the third straight year and is expected to continue its slide.

After delays in carrier certification, palmOne added Cingular Wireless to existing partner Sprint for its new Treo 650 smartphone, gaining access to Cingular's 49 million subscribers. Customers were angry, however, about a $100 pricing error for smartphones without a service contract.

And finally, CEO Todd Bradley resigned in January and completed a management shakeup that included the defection of both the chief of global operations and the chief financial officer. No good news there.

While the market has reacted negatively to palmOne's missteps, others may take a different view.

Shares are cheap now, trading at around 13 times 2005 earnings compared with a sector price-to-earnings ratio of around 25 for competitors like Motorola (NYSE:MOT), Nokia (NYSE:NOK), and Research In Motion (NASDAQ:RIMM). With an average target price of $46.80, shares could double. Even if palmOne were undervalued by only 50%, that would still be a pretty nice pop.

However, fundamental analysis is only part of the story. Sure, contrarian investors are looking for attractive valuations. But there are important qualitative questions to ask.

In his longtime business best-seller Good to Great, Jim Collins identifies common characteristics of great companies that have outperformed the market by at least three times over a 15-year period. Can palmOne be a great company? Some of the appropriate questions might be:

  • Can palmOne get a strong management team in place and, to paraphrase Collins, get the "right people on the bus" before "figuring out where to drive it"?
  • Is palmOne absolutely passionate about building smartphones and PDAs?
  • Can it be the best in the world at it?

Contrarian investors would be well-served to ask these and other questions to begin their due diligence in deciding whether they should add palmOne to their portfolio.

And for more about contrarian and value investing, check out Philip Durell, lead analyst for the Inside Value newsletter. Better yet, try it free for 30 days.

Fool contributor Chris Cather owns none of the stocks mentioned and believes in studying Warren Buffett and Benjamin Graham as the foundation for all equity research.