7 Highly Rated Stocks on Sale

I am always looking for a good deal -- buying an extra box of Lucky Charms when they're on sale or pouncing on undervalued stocks. The idea that anybody would sell a stock for less than it's worth might seem silly, but legendary value investor Ben Graham tells us, by way of allegory, how to find a stock that's "on sale."

In The Intelligent Investor, Graham introduces readers to a wacky guy named Mr. Market. Mr. Market's game is to pay you house calls every day and offer to sell you interests in businesses he owns, or to buy from you interests in businesses you own. Sometimes Mr. Market will show up at your door very excited and offer you premium prices for your holdings, and 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.

To find some of the stocks 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:

As the table shows, these stocks are all well regarded by the CAPS community despite their underperformance over the past month. These examples are not formal recommendations, but they could be a great place to kick off some further research. I'll get you started with some thoughts on Gmarket.

Although the name makes it sound like an outcropping of search giant Google, Gmarket is a South Korean e-commerce company that sports Google's competitor Yahoo! as one of its major owners. The company started in 2000 as a standard online retailer that bought products for inventory and the sold them to customers. The results were far from impressive, and it was consistently unprofitable.

In late 2003, Gmarket changed its strategy and became an e-commerce marketplace, similar to the well-known U.S. e-marketplace eBay. The strategy brought many new buyers and sellers together on the Gmarket site and kicked revenue back to Gmarket via transaction fees. The company also generates a significant percentage of its total revenue from advertising and other nontransaction services.

Since that change in strategy, growth has been robust, and profitability has fallen in line. After a red bottom line in 2004, the company posted a $5 million profit in 2005 and $17 million in 2006. Compounded revenue growth since 2003 has been a red-hot 245%.

Growth has expanded, too, evidenced by the company's second quarter earnings last month. Year-over-year revenue and earnings per share increased 51% and 178%, respectively.

Top-rated CAPS player NetscribeECommer has given the stock an outperform rating and said that Gmarket's future success will be driven by "the ability to recruit small and medium sized retailers to upload inventory on its website." Netscribe's current conclusion is that "with international plans and robust guidance, the shares of Gmarket Inc offer good long-term returns for investors in the rapidly growing e-commerce market of Korea."

Does the drop create a buying opportunity? Does Gmarket face too much competition to continue its growth? Let the community know what you think -- head over to CAPS and share your thoughts with the other 60,000-plus players now part of the community. If you pass on Gmarket, you can check out other stocks listed above or any of the 4,900 stocks rated on CAPS.

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