7 Highly Rated Stocks on Sale

I am 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 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 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:

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 Mueller Water Products.

Is Mueller waterlogged?
Mueller caught my eye last month when I was perusing a Kiplinger's article called "21 Stocks to Make You Rich." Though I'm not averse to finding new ways to get rich, it was the inclusion of News Corp., one of my personal holdings, that induced me to click through to the article.

The first section focused on a few picks from value investors Whitney Tilson and Glenn Tongue (some pretty Foolish guys, if I do say so myself), who run the Tilson Focus Fund. Mueller was cited as one of their top picks and regarded as "a more traditional deep-value pick."

Mueller is a manufacturer of a broad range of water infrastructure equipment, and according to management, the company has the top market position in products like fire hydrants and ductile iron pressure pipe -- a type of iron piping used for water and sewer lines. The company was acquired by Motley Fool Hidden Gems pick Walter Industries, a diversified company involved with coal mining and homebuilding. Walter combined Mueller with its subsidiary US Pipe and Foundry, and then spun off the combined company in two separate stock offerings last year.

For the quarter ended in March, Mueller registered $460 million in sales, up 6% from the same quarter in the prior year. Thanks largely to a reduction in interest expense and corporate overhead from being under Walter's roof, the company improved its net income margin from less than 1% to just more than 4%.

The company faces some challenges, though, from the rapidly decelerating housing market. A big chunk of Mueller's business is tied to residential construction, and as the housing hangover continues to set in, it will likely put a pinch on that portion of Mueller's sales. According to the Kiplinger article, though, Tilson and Tongue think that a good deal of the water infrastructure in the U.S. is in need of some new life. Major infrastructure overhaul would almost certainly send a good deal of business Mueller's way.

One of the All-Star players on CAPS, JJRzut, agrees with the aging infrastructure thesis:

According to the American Waterworks Association (AWWA) and the EPA, wastewater and drinking water systems are aging, with some components far more than 100 years old. A study conducted in June 2001 by the AWWA concluded that more [than] $250 billion of additional investment is needed over the next 30 years to upgrade and repair existing water infrastructure. Existing water infrastructure gets a "D" grade from the American Society of Civil Engineers.

So is it time for Mueller's stock to heat up to a boil? Or are the Tilson fellas and all of the bulls on CAPS wrong? Let the community know what you think -- head over to CAPS and share your thoughts with the other 60,000-plus players who are part of the community. Even if you'd prefer to pass on Mueller, you can check out a couple of the other stocks listed above -- or any of the 4,700 stocks that are rated on CAPS.

More CAPS Foolishness:

• 5 All-Star Stocks on Fire
• Invest Like a Pro: Third Point LLC
• Stocks of the Week

Mueller Water Products, Hercules Offshore, and Walter Industries are Motley Fool Hidden Gems selections. Safety Insurance Group is a Stock Advisor recommendation. You can check out any of the Fool's newsletters with a 30-day free trial.

Fool contributor Matt Koppenheffer owns shares of News Corp., but does not own shares of any of the other companies mentioned. You can check out Matt's CAPS portfolio here, or tune into his CAPS blog here. The Fool's disclosure policy suggests that you ignore any phone calls from brokers at J.T. Marlin.