5 Highly Rated Stocks on Sale

I am 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, whose 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 inconsolably depressed about the future and will offer to sell you what he has for as low as pennies on the dollar.

To find some of the stocks 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 Aug. 9.

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 at whether opportunity could be staring us in the face.

Why so blue?
What drillers really needed was for somebody to perform a feat of Herculean strength and plug up that BP (NYSE: BP) gusher in the Gulf of Mexico before the U.S. government got frantic over the situation. Alas, we had to wait on the plodding process from BP, and in the meantime the government wreaked havoc on the drillers that operate in the Gulf.

To be sure, the shallow-water drilling that Hercules does in the Gulf wasn't directly affected by the on-again, off-again drilling moratorium, but with the Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE) in a tizzy over the spill, it's been darn hard for anyone to get a permit in the Gulf. While drillers like Ensco and Rowan have had to deal with the same Gulf fallout, Hercules has had the added challenge of doing it with an outsized debt load.

The slumping economy has dropped a similar depth charge on Dynamic Materials' business. Second-quarter results weren't all that bad -- in fact, they were better than what management had expected – but the company reported a somewhat worrisome drop in backlog in its explosives metalworking segment. That segment produces the lion's share of Dynamic Materials' revenue. In addition, management lowered its expectations for full-year performance, an action that investors rarely look kindly on.

The hog-to-corn ratio -- that is, the price of a hog in relation to the price of corn -- may have been the culprit behind the drop in AgFeed. While the numbers in the table above don't reflect the market's reaction to AgFeed's late Monday earnings release, it's possible savvy investors foresaw the impact that the falling hog-to-corn ratio would have on AgFeed's margins.

Could investors be concerned about a similar shortfall when GigaMedia reports its earnings later this month? That's certainly possible. It's also possible that this is just a low-volume stock that's been pushed around by individual transactions during the month.

Rounding out with Teva, its stock took a hit when the FDA announced it had approved a generic version of sanofi-aventis' Lovenox from small fry Momenta Pharmaceuticals (Nasdaq: MNTA), which isn't so small-fry after the approval!

The obvious concern is that Momenta beat Teva to the punch on a very significant drug. Some investors also seem to think that the approval bodes ill for Teva's Copaxone, which Momenta is working on a generic version of, and suggests more competition on the way in the generics marketplace.

Picking a winner
Though the CAPS community has a high opinion on all of these stocks, I'm not necessarily on the same page across the board. However, when it comes to Dynamic Materials, I'm more than ready to sing along with the CAPS community's bullish tune.

The company has seen a very hefty drop in its financial performance over the past few years. Revenue slid from $234 million in 2008 to $146 million over the past 12 months. Net income, meanwhile, took a nasty plunge from a 2007 high of $24.6 million to a trailing-12-month total of $4.7 million.

Dynamic Materials is a cyclical company, though, and those declines represent a nasty cyclical dive as opposed to a deterioration of the company's business. The underlying strength of its business is still there, the company just needs a better economy to drive demand for its services.

The slower-than-expected rebound isn't something to totally shrug off. After all, the timing of the company's profits and cash flow directly impacts the company's value. Of course, I'm not sure that's going to matter all that much when profits do come back and Johnny-come-lately investors come rushing in.

I've given Dynamic Materials 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 community members. It's totally free.

While the stocks above may have brighter futures ahead, this red-flag-ridden company may not be so lucky.