7 Highly Rated Stocks on Sale

I am always looking for a good deal, whether that means buying extra boxes 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) 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. Mr. Market's game is to pay you house calls every day 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. 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 stocks 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:


30-day Return

One-year Return

Current CAPS Rating

NightHawk Radiology (NASDAQ:NHWK)








Palomar Medical Technologies (NASDAQ:PMTI)




Meridian Bioscience (NASDAQ:VIVO)








American Eagle Outfitters (NYSE:AEO)




Secure Computing (NASDAQ:SCUR)




Data from Motley Fool CAPS as of April 22.

As the table shows, these stocks are all still very well regarded by the CAPS community despite their underperformance over the past month. These are not formal "buy" recommendations, but they are great beginnings for further research. I'll get you started with some thoughts on NightHawk Radiology.

Why so blue?
NightHawk came to the public markets with a lot of momentum just a couple of years ago, but that pep has been sapped over the past six months. Although there is still a lot of opportunity ahead of the company, financial results have lagged what investors were hoping for, acquisitions have been tough to integrate, and there have been concerns about competition. To top it off, there's been a parade of executives and board members leaving the company.

Since peaking at nearly $26 per share in the latter part of last year, NightHawk's stock has fallen 72% and is now trading at just 6.4 times the midpoint of the company's 2008 adjusted earnings expectations and 1.1 times the midpoint of revenue expectations.

What the bulls say
Recent struggles aside, many investors are still very excited about the prospects for NightHawk and its core teleradiology market. On CAPS, the bulls outnumber the bears 17 to 1, and the stock carries a four-star rating. One of CAPS' NightHawk fans is JMJeffrey, who recently wrote:

Concerns about the company's moat (low barriers for entry), ability to digest recent acquisitions, Medicare acceptance and general market glum have allowed these shares to trade at a huge discount. The market is asking [NightHawk] to prove itself before it will put any 'value' on this company. Fair enough, but this is a profitable and growing business (20%+ growth projected for the next few years) with solid management who know their business. Yes, the waters are choppy (read: risk) but I believe that [NightHawk] has the management, technology and business plan to fly in this nascent field.

So do you think the recent drop has created a good buying opportunity? Or is there more downside ahead? Let the community know what you think -- head to CAPS and share your thoughts with the other 97,000-plus players now part of the community.

Even if you'd prefer to pass on NightHawk, you can check out the other stocks listed above or any of the 5,600 stocks that are rated on CAPS.

More CAPS Foolishness:

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12/22/2010 4:00 PM
NHWK.DL $6.49 Down +0.00 +0.00%
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