3 Highly Rated Stocks on Sale

I'm always looking for a good deal, whether that means buying an extra box of Golden Grahams when they're on sale, or pouncing on undervalued stocks. The idea that anybody would sell a stock for less than it's worth may seem silly, but legendary value investor Ben Graham (no relation to the cereal) tells us, by way of allegory, how we can look out for these situations.

In The Intelligent Investor, Graham introduces readers to a wacky chap named Mr. Market. Mr. Market's game is to pay you house calls on a daily basis, offering 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, providing you premium prices for your holdings. At other times, he'll be inconsolably depressed about the future, and willing to sell you what he has for as low as pennies on the dollar.

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 has been given one of the two highest ratings from CAPS members:

Data from Motley Fool CAPS as of June 7.

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, let's take a closer look to see whether opportunity could be staring us in the face.

First, though, we need to figure out why the market has smacked down these stocks. Though the S&P 500 has suffered a pretty steep sell-off over the past month, each of these stocks has underperformed the index.

DreamWorks Animation
In DreamWorks' case, the drop has everything to do with a big, green ogre. That's right, Shrek is back in the latest -- and supposedly final -- installment in the DreamWorks franchise. But disappointing numbers from the box office have had DreamWorks' stock looking pretty green around the gills.

Some of my fellow Fools think that the Mr. Market has overdone the ogre-driven sell-off. Still, the going won't get any easier for Shrek, as Disney (NYSE: DIS) prepares to release Pixar's much-anticipated Toy Story 3.

Monsanto
Monsanto, meanwhile, has been facing an ogre of its own, in the form of crippling competition in the glyphosate herbicide market. Roundup, Monsanto's glyphosate-based weed killer, has been getting its butt kicked by generic products. The situation led Monsanto to overhaul its Roundup business, pricing the product closer generic competitors. Though this may have been the right move under the circumstances, it forced the company to slash its earnings estimates.

Dawson
A disappointing earnings report for Dawson came at exactly the wrong time, injecting some company-specific pessimism just as investors were broadly getting more pessimistic. In the first quarter, Dawson reported a loss-per-share of $0.35, which was worse than the expected $0.20 loss.

Dawson's financial performance hasn't been easy on the eyes since the oil and gas markets crashed in 2008. Though natural gas has seen some positive action lately, the struggles in that market are of particular concern for the company.  Natural gas giant Chesapeake Energy (NYSE: CHK) made up nearly a third of Dawson's 2009 revenue, and SandRidge Energy (NYSE: SD) was a big revenue contributor in the past.

Picking a winner
The CAPS community seems to think that all three of these stocks could be outperformers, but my vote goes to Monsanto.

As noted above, the company's recent spate of ugly news could have a silver lining. Though Roundup has been an important component of Monsanto's business in the past, its difficulty fending off generic competition highlights Roundup's lack of competitive advantage. The weed killer certainly won't be wiped off the map, but lower expectations may be reasonable for this piece of the business.

Monsanto's seed business, on the other hand, is far more exciting, providing the company with a substantial moat. As farmers around the world try to increase their crop yields, Monsanto's seeds and biotechnology traits could enjoy a sizable opportunity, both through direct sales and licensing agreements. Just recently, the company signed a new licensing agreement with a Dow Chemical (NYSE: DOW) subsidiary, which will bring in royalty payments for the use of Monsanto's Roundup Ready 2 Yield technology.

Thanks to the steep drop in earnings expected for this year, Monsanto's valuation doesn't look terribly appealing. However, the bottom line is expected to bounce back a bit in fiscal 2011, and analysts have a pretty bullish outlook for the company's long-term growth. The stock's current 2.2% yield doesn't hurt, either.

Griffin416, one of CAPS' top-rated members, has a similar view on Monsanto's stock, and recently gave it a thumbs-up:

This company does have problems, lawsuits, generic competition, it guided down significantly. But the stock has been punished so severly it seems at this point to be more than priced in. I have been watching/ waiting for some catalyst.

Well, Goldman Sacks just put it on its conviction buy list. This should give the stock a boost for at least a few days, therefore stopping the current trend of going down every single day no matter what the tape looks like.

I've given Monsanto a thumbs-up in my CAPS portfolio. But here's the important question: What do you think? Head over to CAPS and share your thoughts with the other 165,000-plus members in our community.

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