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.

Fertilizer: It's not just for plants anymore
Is fertilizer the new gold? Recent news headlines have been dominated by reports of growing confidence at Goldman Sachs, which has been pushing upgrades of PotashCorp (NYSE:POT) and Mosaic (NYSE:MOS) out the door. Yet as the Street waxes bullish on one mineral, its interest in another wanes -- and it seems that gold has lost its shine.

As the table above illustrates, one by one, we see gold miners falling out of favor on Wall Street, as fertilizer fans push Terra Industries to the fore.

The bull case for Terra Industries
Why invest in a fertilizer firm? CAPS All-Star barnettech boils the bull case down for us: "People have to eat even during hard times, and with population growth and a limited amount of land to grow food. Agriculture is a great place to invest. The fundamentals on this stock are great right now."

Last week, ChemDude11 suggested: "About the only thing that could derail Terra's continued strong performance (though not its fiscal performance) is a successful attempt to manage a hostile takeover of one of its two rivals. That could hurt the share price short term."

But Terra has its own back to cover, and All-Star investor DerektheDude recently reminded us that there's a big "special dividend coming up and it looks like [CF Industries (NYSE:CF)] is hot on the trail to snatch them up for b00-c00 bucks & stock."

How beaucoup is "b00-c00?"
In fact, CF Industries has offered to pay cash-and-stock worth nearly $46 per share if Terra will just sign on the dotted line. So far, Terra isn't taking the bait -- in fact, Terra's $7.50 special dividend was most likely designed to make Terra a less enticing target for CF.

With a $46 offer on the table already, it's hard to imagine why Wall Street would be selling Terra shares here at $33. Especially now that we see Goldman Sachs so hot on fertilizer prospects. (Then again, Goldman was saying the opposite just a few months ago ... ) So is there anything to suggest that this deal is anything other than an out-and-out no-brainer?

Perhaps
Consider: Terra today sells for 11 times earnings and free cash flow. But most analysts on Wall Street think Goldman's full of ... fertilizer when it says the fertilizer market is about to revive. To the contrary, consensus estimates call for just 3.5% annual growth at Terra over the next five years -- which could be slow enough growth to make even a 10 P/E look expensive.

Personally, I think the buyout offer is rich enough to make this stock worth the risk. But if you disagree, here's your chance to tell us why. Click over to Motley Fool CAPS now, and toss your $0.02 into the debate.

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