Contrarian Shopping List

"We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful." -- Warren Buffett

Out of the quadrillions of quotations quarried from that most loquacious of quotationists, this one holds a special place in the hearts of Foolish investors. Are you looking to "buy low" to later "sell high"? If so, your best chance of getting that initial low entry price comes when panicked sellers are unloading their shares at whatever price is on offer.

In today's column, we search the ranks of Wall Street's motivated sellers, noting the stocks they're most frantic to unload -- the potential makings of a contrarian investor's shopping list. But don't take my word for it. Before you decide to go in through Wall Street's out door, check your thinking against the collective intelligence of Motley Fool CAPS investors.

Today's contenders include:

The problem with pessimism
There's one problem with going against the grain on Wall Street: When professional traders get pessimistic, their grim outlook can become a self-fulfilling prophecy -- at least in the short term. The more desperate institutions become to abandon a stock, the lower the price they'll accept to get rid of it. And as their "ask" prices drop, the "bid" prices of buyers will fall in tandem, creating the very price decline that they feared in the first place.

Until the selling stops.

In through the out door
No one knows when that'll happen. But until it does, savvy investors have a chance to "get greedy" and snap up some bargains (if they are true bargains) from these fearful sellers.

This week, investors believe they've found a steal of a deal in the stock of online search and marketing specialist Marchex. Roughly nine out of 10 investors polled on CAPS think Marchex is a buy -- quite a contrast to Wall Street, where the voting is running 2-to-1 against it. Let's find out why our players think Wall Street is marching to the wrong beat.

The bull case for Marchex
CAPS All-Star tverke introduces us to the company: "Marchex leverages proprietary technology products to connect advertisers with relevant online customers through ... a proprietary network of direct navigation Web properties, including vertical and local Web sites."

Two other players, tglacour and also All-Star investor lemus both argue that Marchex will soon rocket into the double digits. Says lemus: "With about 25% of the shares being shorted, I think we will see a short squeeze soon, boosting the price back to the $13-$14 range."

tglacour names the same price range but for different reasons: "With the new 52-week lows, solid management and a generous dollop of virtual real estate, it seems hard to believe that MCHX won't rebound within the year at least ... to the $13-$14 range." Talk about Foolish minds thinking alike!

Speaking of Fools, let's close with a word from the Fool's own TMFBreakerRick, who believes this company is

... all about the monetization, optimization, beautification, baby. Marchex has great domains but not a lot [of] 'there' there. As it cashes in on its vertical sites and its juicy virtual real estate this stock will climb.

It'll have to climb a lot, though, to justify its current price-to-earnings ratio. If you don't know it already, you'd better sit down for this -- Marchex trades for a whopping 415 times trailing earnings. Granted, analysts expect the company to grow its "E" at 28% per year over the next five years, but still, that's a pricey multiple, don't you think?

Fortunately for Marchex bulls, that may also be a misleading multiple. If you look past the generally accepted accounting principles and examine Marchex's cash profits, you'll notice that the firm is selling for just 14 times the $27 million in free cash flow it generated last year. Now, weigh that multiple against 28% growth, and you could be looking at a real rocket of a stock here, folks.

Time to chime in
But the aim of this column isn't just to tell you what I think about Wall Street's rejects -- or even what our other players are saying. We also want to hear what you know about the company. Should we be focusing on the GAAP numbers here, or the free cash flow? Tell us what you think. If you've got an opinion, we've got a place to voice it.

Motley Fool CAPS: It's fun, it's free, and it just might make you famous.