7 Highly Rated Stocks on Sale

I'm always looking for a good deal, whether that means buying an extra box of Frosted Flakes 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 wacky 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, offering you premium prices for your holdings. at other times, he'll be inconsolably depressed about the future, and he'll 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 has been given a four- or five-star rating (the highest) by our community of investors:


30-Day Return

One-Year Return

Current CAPS Rating

LDK Solar (NYSE: LDK  )




Alcoa (NYSE: AA  )




Cisco Systems (Nasdaq: CSCO  )




The Dow Chemical Company (NYSE: DOW  )




The Walt Disney Company (NYSE: DIS  )




AT&T (NYSE: T  )




Deere (NYSE: DE  )




Data from Motley Fool CAPS as of July 8.

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 Alcoa.

Why so blue?
It was a headache-filled quarter for Alcoa, and I can only imagine that there was a super-sized bottle of Advil on the desk of Alcoa's new CEO, Klaus Kleinfeld. Despite the fact that aluminum prices have been on the rise, so have the costs that Alcoa faces. As we all know too well, energy prices have been soaring, and for Alcoa, that means higher costs to power its production facilities. At the same time, the price of alumina -- the basic ingredient of aluminum -- also rose, as did caustic soda and some of the other products used in Alcoa's production process.

All that would be enough to put some pressure on Alcoa shares, but power supply issues also tormented the company during the quarter. Last month, there was an explosion at an Apache Energy site in Australia that forced Alcoa to declare force majeure on some of its supply contracts and cut second-quarter earnings-per-share expectations by $0.02 to $0.03. Later in the month, power supply issues in Rockdale, Texas, forced the company to lay off 250 workers and temporarily idle half the production at its smelter there.

What the bulls say
But in all this, let's not forget that aluminum prices are on the rise, as is demand. Alcoa itself forecast that global demand for aluminum would expand a smoking 8.5% in 2008, and with production problems cropping up all over the place, smelters like Alcoa stand to rake in profits if they can somehow keep disruptions at a minimum.

abitarecatania, one of the top players in the entire CAPS community, has been bullish on Alcoa since mid 2007, and rerecommended the stock back in May. This player gave a long list of reasons why investors should be considering Alcoa, including:

2. Reasonable valuation compared to other commodity picks
3. [Aluminum is] more recession proof than steel
5. [It's] not gold or silver or oil, which are the most crowded trades in the history of the world
7. No level 3 assets hidden on books
9. International exposure: "[Alcoa] has 97,000 employees in 34 countries"

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 over to CAPS and share your thoughts with the other 110,000-plus players currently part of the community. Even if you'd prefer to pass on Alcoa, you can check out a couple of the other stocks listed above -- or any of the 5,500 stocks that are rated on CAPS.

More CAPS Foolishness:

Dow Chemical is a Motley Fool Income Investor pick. Walt Disney is a Motley Fool Stock Advisor recommendation. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Matt Koppenheffer does not own shares of any of the companies mentioned. You can check out what Matt likes in CAPS by visiting his CAPS portfolio. The Fool’s disclosure policy knows how to drop a stock like it's hot, but only when the company is truly cold.

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