7 Highly Rated Stocks on Sale

I'm always looking for a good deal, whether that means buying an extra box of cereal when it's 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 fellow named Mr. Market. This wacky chap's game is to pay you house calls on a daily basis, either 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, while at other times he'll be inconsolably 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. Just 30 days ago, our community of investors gave each of the companies in this table a five-star rating, the highest possible:

Data from Motley Fool CAPS as of Feb. 10.

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

Why so blue?
There hasn't been much news out of KHD over the past month, and it doesn't take much of a leap to figure out why investors might be selling off the stock. KHD provides engineering services and equipment to companies putting up facilities to work with cement, coal, and minerals such as copper. This has been a great business over the past few years, as places with emerging economies -- where KHD does most of its business -- have gone bananas over new infrastructure projects that required copious amounts of cement.

Back in December, though, KHD detailed what many investors were already assuming -- that some of its orders are being canceled or postponed while others are at risk of the same fate. Since then, with the economy moving in the same direction as the Sacramento Kings' playoff hopes, investors have probably concluded that KHD has seen some more fallout in its backlog.

What the bulls say
It's not by coincidence that a stock ends up being a two-time Motley Fool Global Gains recommendation and a Motley Fool Hidden Gems pick, and it doesn't take too much digging to figure out why KHD may prove an outperforming stock despite the current economic headwinds.

The bullish case definitely starts with the company's balance sheet, which sported more than $400 million of available cash and investments against a paltry $13 million or so in debt at the end of September, when its most recently reported period ended. And although some of that cash pile may have to go back to customers cancelling projects, most of it should stay firmly cemented in KHD's bank account.

The rest of KHD's balance sheet is similarly solid -- since the company isn't actually a manufacturer, it has a relatively small amount of property and equipment on its balance sheet. And without any major, overpriced acquisitions to speak of, there's no chunk of goodwill just waiting to be written off. This state of affairs makes the company's most recent book value of $352 million seem all the more believable.

Given the solidity of KHD's balance sheet alone, we might conclude that the company's current $299 million market cap is a very reasonable price. But that wouldn't even take into account the future earning potential for the actual operating business. It's hard to argue that business conditions will be hunky-dory in the near term, but a view from a longer time horizon might show this company once again benefitting from the growth in emerging economies once the world economy has had a chance to get out of its funk.

RavenManiac1968 is one of the many CAPS members who has put a green thumb in the air for KHD and recently pointed to China as a reason to don the bullish horns: "the great Infrastructure Revolution in China is going to pay off BIG for this company!"

So do you think the recent drop has created a good buying opportunity? Or will KHD continue to sink with the rest of the market? Let the community know what you think -- head over to CAPS and share your thoughts with the other 125,000 members currently part of the community. Even if you'd prefer to pass on KHD, you can check out a couple of the other stocks listed above, or any of the nearly 5,400 other stocks that are rated on CAPS.

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