7 Highly Rated Stocks on Sale

I am always looking for a good deal, whether that means buying three boxes of Frosted Flakes when they go on sale or pouncing on undervalued stocks. The idea that anybody would sell a stock for less than its worth may seem silly, but legendary value investor Ben Graham tells us, by way of allegory, how we can look out for these situations.

In The Intelligent Investor, Graham introduces readers to a crazy guy named Mr. Market. Mr. Market's game is to pay you house calls on a daily basis to offer to sell you interests in businesses he owns or to buy from you interests in businesses that you own. Sometimes Mr. Market will show up at your door very excited and offer you premium prices for your holdings, while at other times he'll be totally depressed about the future and will offer to sell you what he has for as low as pennies on the dollar.

So to find some of the stocks that Mr. Market is depressed about, I've turned once again to The Motley Fool's CAPS investor community. Each of the companies below had been given a five-star rating (the highest) by our community of investors just 30 days ago:

Data from Motley Fool CAPS as of March 20.

As the chart shows, these stocks are all still very well-regarded by the CAPS community despite their underperformance over the past month. While these aren't formal recommendations, they could be a great place to kick off some further research. I'll even get you started with some thoughts on Calamos Asset Management.

Fighting for fees
As you might expect, those fund fees Shannon Zimmerman keeps a close eye on over at Champion Funds are an asset manager's lifeblood. Whether it's the fancy private equity and hedge fund manager Fortress Investment Group, industry stalwart Janus Capital Group, or $500 million Calamos, the math isn't all that much different. When you increase assets under management, you increase management fees, and when you increase management fees, you make your shareholders happy.

Calamos started as John Calamos' investment advisory firm back in 1977. The firm focused on delivering returns to investors while effectively managing risk. In particular, Calamos had a fascination with convertible securities, and the firm's first mutual fund was focused on converts. While the firm still manages roughly $750 million in the Calamos Convertible Fund (CCVIX), the Calamos Growth Fund (CVGRX), with more than $15 billion in assets under management, is its gold mine.

At the end of 2006, Calamos' growth fund was given five stars by Morningstar for its 10-year performance, and Lipper ranked the fund No. 2 out of 118 over the same period. It's not surprising that the fund has grown so much, either -- after gaining 78% and 27% in 1999 and 2000, it showed less downside in 2001 and 2002 than the S&P. The fund then capitalized on the market's recovery and put up 42% returns in 2003. Unfortunately, performance has leveled out more recently -- it put up just 1.5% for 2006, and the current one-year return for the fund is underwater.

Not surprisingly, this has hurt the firm. Net assets at the growth fund have fallen almost 10% since year-end 2006, and overall AUM at Calamos fell to $42.9 billion in February from $44.5 billion in January and $46.4 billion last February. This certainly wasn't helped by the reported $3.4 billion yanked out of U.S. equity funds the week the China Syndrome struck. Nor is it much to get investors excited after the firm grew overall AUM a less-than-stunning 2% in 2006.

The turning point?
I've often heard it suggested that when looking at mutual fund managers, you should seek out the ones that have put up sustained returns over the long term. Last year's hottest fund often ends up showing that its returns were just a one-year aberration, and middling returns from managers who have a good track record can turn out to be a fluke in the opposite direction. I would speculate that the Calamos Growth Fund, which has produced 16.7% average annual load-adjusted returns since its 1990 inception, might be having that sort of short-term issue. And though there's certainly more to Calamos' business than the one fund, a turnaround in the fortunes of its biggest fund could go a long way to boosting results.

A number of CAPS All-Stars have gotten behind Calamos, including razormd, who is ranked in the top 3% of all CAPS players. razormd shares:

"[Calamos is an] overlooked investment manager - 'the little engine that could' with steady earnings progress since coming public a few years ago. It traded as high as 44 last year and has now built a base around 26 over the past nine months. It looks like a reasonable prospect for a good return over the next few years."

Do you think Calamos is on its way back? Head over to CAPS and share your thoughts with the other 24,000 players who are currently part of the community. Even if you'd prefer to pass on Calamos, you can check out a couple of the other stocks listed above, or any of the 4,100 stocks that are rated on CAPS.

For more CAPS coverage:

• Wall Street's Wish List
• 5 Stocks Raising Guidance
• 5 More Turnaround Stocks

Fool contributor Matt Koppenheffer does not own shares of any of the companies mentioned. You can check out Matt's CAPS portfolio here, or tune in to his CAPS blog here. The Fool's disclosure policy loved it at 40, and thinks it's an insult at 50.