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" so you can 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, and note which stocks they're most frantic to unload. Therein may lie the makings of a contrarian investor's shopping list. But don't just 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:

Companies are selected from the "Institutional Ownership Down Last Month" list published on MSN Money on the Saturday following close of trading last week. Current pricing also provided by MSN Money on the same date. CAPS ratings from Motley Fool CAPS.

The problem with pessimism
The problem with going against the grain on Wall Street is that when professional traders get pessimistic, their grim outlook can become a self-fulfilling prophecy -- at least in the short term. The more that institutions become desperate 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
When it will stop is anybody's guess. But until it does, savvy investors have a chance to "get greedy," and snap up some bargains from these fearful sellers (if bargains they truly be).

As luck would have it, investors see a couple of possible bargains this week. Cosmetic surgery facilitator Cutera for one. "Network optimizer" Internap for another. Internap is the one with the five-star endorsement from CAPS, though, so it's the one we'll highlight today as we examine ...

The bull case for Internap Network Services
More than 200 CAPS players recognize this company; Internap has a way to go before it becomes a household name. Let's start with a brief introduction, courtesy of CAPS All-Star NetscribeECommer:

Internap Network Services Corporation delivers a suite of network optimization solutions for internet applications for e-commerce, customer relationship management, multimedia streaming, voice over internet protocol, virtual private networks and supply chain management. Revenues are generated through sale of internet connectivity services and other ancillary offerings like Data Center Services, Content Delivery Networks, Server management and installation services, Data backup among others. ... The increasing reliance on the internet by enterprises for business critical functions ... augurs well for Internap as this segment is driving its growth. With a focused strategy to be a global provider of internet services, Internap is gaining investors attention, as it is integrating its technology in four key technological areas of connectivity, data center, content delivery and advertising services.

If all of this sounds awfully similar to a certain Motley Fool Rule Breakers pick you know, then there's a reason for that. Gaugamela muses that while Internap is perhaps:

Not as good as [Akamai (NASDAQ:AKAM)] there's plenty of room for two players in this space. Early thoughts were that [Limelight Networks] would be the second player in content delivery, but it's looking more and more like [Internap] is going to assume that role.

Summing it all up, robhy opined last June:

Internap has invested in the technology to allow companies to communicate faster in the new, flatter world. More importantly, they provide the after sale support to keep things running smoothly (and profits coming in). Just turning profitable, with solid cash flows, and EBITDA expected to by around 37 million, INAP is trading very cheaply relative to [its] growth rate.

Internap has lagged the S&P 500 by 28 percentage points since robhy wrote those words -- but that just means the stock is even more cheaply relative to its growth rate, right?

Not necessarily. In fact, when I look at the company's financials, I see both negative profits under GAAP and negative cash profits for the last 12 months. (In contrast, Akamai -- which you'll remember Gaugamela said was better than Internap -- earned a good $86 million over the past year, and generated more than $100 million in free cash flow.) Personally, I find it difficult to weigh negative profits, of either the accounting or cash variety, against a growth rate of any size. But if you do it, more power to you. With analysts predicting this firm will grow at a rate close to 40% per annum over the next half decade, it just might be worth a flier for an investor not averse to a bit of risk.

Time to chime in
Of course, the aim of this column isn't just to tell you what I think about Internap Network Services -- or even what the other CAPS players are saying. We also want to hear your thoughts on the company. 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.