7 Highly Rated Stocks on Sale

I'm always looking for a good deal, whether that means buying an extra box of Cocoa Puffs when they're 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 wacky guy named Mr. Market. He pays you house calls on a daily basis, offering to sell you interests in businesses he owns, or to buy such interests from you. Sometimes Mr. Market will show up at your door very excited, offering you premium prices for your holdings. At other times, he'll be totally depressed about the future, offering to sell you what he has for as low as pennies on the dollar.

To find some of the stocks that Mr. Market's 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 still very well-regarded by the CAPS community, despite their underperformance over the past month. While these are not formal recommendations, they could be a great place to kick off some further research. I'll even get you started with some thoughts on FreightCar America.

A double take on FreightCar
FreightCar America's numbers make you wonder, "Is this an amazing value or an insidious value trap?" We're defining a value, of course, as one of those situations where Mr. Market has a lampshade on his head and a goldfish in pocket, and he's selling a stock for waaaaaay less than it's worth. A value trap, on the other hand, is a stock that looks a heck of a lot like a value, but actually isn't.

On a trailing basis, FreightCar shares are currently trading at a rock-bottom P/E multiple of just above four -- a blaring siren for value hunters. Current Wall Street estimates, however, project that the company's 2007 earnings will be more than 60% lower than 2006. The bottom line for 2008 is expected to drop another 45%, giving the stock a P/E of almost 19, based on 2008 earnings.

Some CAPS players have soured on the stock, as it continues to disappoint. CAPS player ambiguity, one such bear, pointed to the higher forward P/E multiple, along with value investor Monish Pabrai's recently sale of his FreightCar position.

Many other players, however, feel that industry fundamentals will support FreightCar over the longer term. TMFBreakerTAllan thinks that FreightCar's lack of debt and strong cash position, as well as the shift to more rail transportation due to high oil prices, make the stock a good bet. "[Railroads] are back on track," he wrote, "and RAIL will supply the cars to all of them."

So has the recent drop created a good buying opportunity? Or is FreightCar headed for further trouble? Learn more from the community, and let us know what you think -- head over to CAPS and share your thoughts with the other 65,000-plus players. Even if you'd prefer to pass on FreightCar, you can check out a couple of the other stocks listed above, or any of the 5,000 stocks CAPS rates.