Fearful Stocks for Greedy Investors

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:

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.

Up on Wall Street, the investment bankers are unloading all of these
stocks, and if truth be told, Fools aren't too hot on their prospects
either. Why not? The reasons vary. Despite every reason you can name to
expect the contrary, the U.S. dollar seems to be holding up just fine -- taking the shine off miners such as Agnico-Eagle. Sequenom just admitted to playing hanky-panky with its R&D results, while Burger King played it straight ... by reducing guidance.

One stock on which Fools differ vehemently with the professionals,
however, is Learning Tree. Wall Street seems to be selling it off for
no reason in particular, while CAPS members give it a high rating --
four stars. Open your workbooks to page 42, and let's find out why:

The bull case for Learning Tree

SAInvestorsClub introduced us to this stock way back in 2007:

They provide independent training (historically tech focused)
but they are making more of a push into managerial training. ... During
the tech bubble they expanded aggressively and overbuilt capacity. With
mostly fixed costs there are two ways to move the needle. One increase
occupancy (better marketing and course selection). Two decrease costs
(eliminate expensive or unnecessary leases). They are doing both and
shareholders are being rewarded.

Why might this appeal to investors today? As CAPS All-Star SammyG77 pointed out last fall: "During slow ecnomic times, is when the workforce learns new skills. Should see a spike in demand."  And fellow All-Star RonChapmanJr agreed: "Job losses are everywhere and people believe that education will help them get another job so they go get more skills from Learning Tree."

OK, that sounds logical. And yet, recent analyst downgrades on for-profit educators such as Apollo Group (Nasdaq: APOL) and peer Lincoln Educational Services (Nasdaq: LINC),
like Learning Tree, an IT specialist, suggest that Wall Street has been
losing faith in this thesis. Wall Street thinks the for-profits are
dear, but does the high price of other stocks in this sector,
generally, justify selling off Learning Tree in particular?

Not necessarily. Perhaps the greatest advantage that Learning Tree
has over its rivals is its price. The stock sells for a 15 P/E right
now. And while no analysts have posited five-year growth rates for
Learning Tree (indeed, only two analysts cover the stock at all), they
expect big dog Apollo to post 16% long-term growth, and the industry at
large to grow 12% over the next five years. All else equal, it seems
likely that Learning Tree should fall somewhere in that range as well.
In which case, a 15 P/E looks reasonable.

Let's also not forget that after years of burning cash, Learning Tree has just put together back-to-back free cash flow-positive
performances, generating $13.1 million in 2007, and $11.1 million last
year. While these numbers fall somewhat short of what Learning Tree
reports as its "net income" under GAAP,
the fact remains: While the rest of the economy goes to heck in a
handbasket, this company has been generating healthy free cash.

Time to chime in

With nearly half its market cap made up of cash, more cash pouring in
with every passing quarter, and minimal analyst coverage, I think
there's every chance Wall Street is calling this one wrong -- and our
CAPS members right.

Copyright © 2009 Universal Press Syndicate.