7 Surprising 5-Star Stocks

In The Intelligent Investor, Ben Graham introduces readers to a charming but manic-depressive fellow who goes by the name of "Mr. Market."

Mr. Market's game is to pay you house calls on a daily basis to persuade you to buy or sell the stocks of businesses he owns or wants to own. Because of Mr. Market's bipolar affliction, he will sometimes show up at your door fantastically excited about the prospects for the future, will want a sky-high price for his stocks, and will similarly offer you premium prices for yours. On the other hand, he will occasionally become inconsolably depressed about what the future may hold and will offer to sell you his wares at prices as low as pennies on the dollar.

As an investor, your task is to figure out the value for the items that Mr. Market is hawking and buy from him when he offers low prices and sell to him when he gets too excited about certain items.

This week, I've picked out seven stocks from The Motley Fool's CAPS community that CAPS members have given five stars but whose price has been cut over the past 30 days. Are these examples of Mr. Market getting too depressed? Or are they not top-quality merchandise after all?

Here are the week's stars on sale, as identified by your fellow Fools on CAPS. Our community of investors had given each of the companies below a five-star rating (the highest) just 30 days ago.

Quicksilver Resources has since fallen off to three stars because of its underperformance. International Assets, Sabine Royalty Trust, Southwestern Energy, and Brigham Exploration have all likewise been bumped down and are now four-star stocks. Meanwhile, Arch Coal and Vaalco Energy have held rock solid at five stars, as CAPS players continue to pile in with more outperform ratings.

Warm, isn't it?
For some of us, the unseasonably warm weather this winter, particularly on the East Coast, may seem like a lucky break. For companies in the energy business, though -- particularly natural gas and coal -- warm winter weather cuts energy usage heavily in a typically strong season for producers of fossil fuels. Natural gas prices have been on a steep decline since the beginning of September, and though coal prices don't have nearly the volatility of natural gas, coal producers have been feeling the squeeze as well.

For Arch Coal, the tough environment has created ample pessimism, and Mr. Market is selling it in a one-third-off sale versus what the price was 12 months ago. While the tough times could hurt near-term results, the pessimism could create a good opportunity for long-term investors to pick up shares.

Though coal is the dirtiest of the fossil fuels, there have been a lot of changes that are making it somewhat less harmful to the environment. Given that it's also the cheapest of the fossil fuels, controlling the pollution from the coal or increasing its efficiency could allow coal to grab some of the market where petroleum currently reigns. While all of this would mean increasing revenue for Arch, the company has also been doing a lot to increase profitability, even while the top line has stayed relatively flat.

Energetic declines
You don't have to look far for energy-related stocks that are on sale, though. In addition to Arch Coal, four of the other six companies from the table above are involved in the oil and gas industry. Brigham Exploration, Vaalco, Southwestern Energy, and Quicksilver are all independent oil and gas developers.

All of these have had a rough time over the past 30 days, but performance over the past year has varied widely. Even after its 21% decline over the past month, Vaalco is still up nearly 50% in the last 12 months, while Brigham is down about 50%. Nevertheless, CAPS players have thought highly of both stocks -- Bringham has managed a perfect 5-0 record among CAPS All-Stars, and Vaalco has 333 total outperform ratings versus just eight underperforms.

CAPS All Star worCkciN says this of Vaalco: "Natural gas has been hit hard recently, but Vaalco Energy is likely to post 30% production growth in 2007. It has a very high return on invested capital and if things work out well in Gabon this could very likely hit $10 again."

So is it time to take advantage of some of these blue-light specials Mr. Market is offering? Maybe not, but a few of these five-star underachievers might be excellent candidates for further due diligence. In the meantime, get in the game and get yourself heard. Join the other 19,000-plus investors who have already become a part of the greatest investor community out there -- Motley Fool CAPS.

For more CAPS coverage:

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Fool contributor Matt Koppenheffer pities the fool that ain't on CAPS yet. He does not own shares of any of the companies mentioned. The Fool's disclosure policy is tougher than B.A. Baracus himself.