7 Highly Rated Stocks on Sale

I am always looking for a good deal, whether that means buying three boxes of Frosted Mini-Wheats when they go 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 chart 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 kick you off with some thoughts on Varian Medical.

Variance hurts Varian
For Varian, curing cancer is more than a nice thing to think about -- it's the company's primary business. Varian produces the artillery used in the radiation treatment in cancer patients.

The idea behind radiation treatment is creating a beam that you can shoot at the cancerous tumor to destroy it, or at least retard its growth. The trick is that tumors are always surrounded by normal, healthy tissue, and the last thing you want to do is start blasting around and destroy a whole bunch of perfectly good tissue. So it's crucial to produce systems that not only deliver effective amounts of radiation, but do it with a great amount of precision. And that's exactly Varian's focus.

In addition to oncology equipment, Varian also produces components and subsystems for X-ray equipment and X-ray accelerators for security screening systems. The security business is particularly notable for the company because it has been showing some respectable growth (in spite of it's small size).

It's been a disappointing month for Varian, though, as the company had to fess up to results that were less than expected. Back on April 12, the company issued a press release saying that revenue would be softer than expected, mainly because of the oncology segment. In particular, the company claimed that as its systems become larger, more complex, and more expensive, the sales cycles are becoming longer and less predictable.

When it came time to actually report the quarter two weeks later, a reduced outlook for the year made the cut a bit deeper. Again primarily citing the changing sales cycles for oncology products, the company gave guidance for third-quarter and year-end earnings that were below what Wall Street was hoping for.

But if there are bears lurking out there for Varian, they haven't found their way to CAPS. Of the 104 CAPS players that have rated Varian, all 104 -- including 28 All-Stars and six Wall Street players -- have rated Varian an outperform.

HelicalZz points out that "[Varian sells] expensive equipment, but constant innovation should continue to drive future growth." He also notes that the "demographics favor expanded health care coverage as well." Meanwhile, writing in particular about the reaction to the recent quarter, Hopper39 writes:

Overreaction from the market after first quarter results underperformed expectations. Varian continues to be the dominant player in the field, with outstanding prospects internationally that will materialize behind progress made in the domestic radiotherapy market.

So is Varian set to move northward again? Let the community know what you think -- head over to CAPS and share your thoughts with the other 28,000 players who are currently part of the community. Even if you'd prefer to pass on Varian, you can check out a couple of the other stocks listed above -- or any of the 4,400 stocks that are rated on CAPS.

For more CAPS coverage:

• Today's Strong Buys
• This Just In: Upgrades and Downgrades
• Contrarian Shopping List

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. The Fool's disclosure policy recalls the day when it taught Mr. Miyagi how to sand the floor.