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 Skechers and Hidden Gems recommendation Volcom.

Hip goes flop
Last week was just not a good week for stocks. The S&P fell 4% on the week, including a 2.3% drop on Thursday. Reporting earnings during a week like that can be a tricky proposition, since market sentiment can overshadow good reports and a bad report can act like that Acme anvil Wile E. Coyote always seems to be holding when he runs over the side of a cliff.

Nevertheless, it was last week that fashion-forward retailers Volcom and Skechers were on the schedule to show their cards for the second quarter. Both companies reported strong revenue growth year over year, but weren't quite as profitable as in 2006. In Volcom's case, revenue was up 25% while earnings per share dropped 7%. Skechers had somewhat slower revenue growth of 21% and a sharper 20% drop in EPS.

In both cases, the companies cited increased expenses for new business initiatives as the cause for the slide in profitability. Volcom has been ramping up operations in Europe and racked up extra spending for that, while Skechers blew some extra cash in connection with the launch of its Cali Gear by Skechers product line.

Though the two reports had a lot of similarities, they weren't perfectly parallel. Volcom had anticipated and communicated the extra costs to its investors ahead of time, and it reaffirmed its 2007 outlook in its press release. Skechers, on the other hand, seemed to be caught somewhat off guard by how much Cali Gear set it back. Skechers also lowered its guidance for the third quarter.

Both companies seem to have been caught in a compromising position at exactly the wrong time. In the realm of bad news, though, Volcom's is a much easier pill for me to swallow. New CAPS player VieuxCarre agrees and chose Volcom after the drop as his first pick, reasoning that it's an "innovative, expanding company" that "will outperform because it just took an 18% drop on marginally bad news, in the setting of our big market correction."

So will one or both of these trendy retailers stage a comeback? Or is it time to reevaluate what they're worth? Let the community know what you think -- head over to CAPS and share your thoughts with the other 60,000-plus players currently part of the community. You can also check out a couple of the other stocks listed above, or any of the 4,700 stocks that are rated on CAPS.

Looking for another opinion on Volcom? Head over to Hidden Gems to read more on this newsletter pick and get 30 days of free access to the entire portfolio, which is up on the S&P 500 by more than 31%. There's no obligation to subscribe.

Fool contributor Matt Koppenheffer does not own shares of any of the companies mentioned. You can check out Matt's CAPS portfolio here, or tune into his CAPS blog here. Netgear is a Stock Advisor recommendation. GigaMedia is a Global Gains pick. The Fool's disclosure policy was all hop and no hip until it started wearing Volcom duds. Now it's hip-hopping all over Wall Street.