7 Highly Rated Stocks on Sale

I am always looking for a good deal, whether that means buying an extra box of Cocoa Puffs 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 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 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 a couple of these stocks.

Reconsidering Spartan
It's been a heck of a year for Spartan Motors shareholders. The stock has doubled and then some on the back of strong results. For the 12 months ended in March, Spartan's revenue was up 35% and earnings per share jumped 67%. The company has managed to double its net income margin since 2004.

It appears that some investors are starting to reconsider whether the stock can keep up its run, though.

The important thing to understand about Spartan is that the majority of its growth over the past year has been from a segment that it still refers to as "other sales" in its SEC filings. "Other sales" refers to the company's sales of specialty vehicle chassis, which are going to defense contractors for building military vehicles. Sales in this segment were up 167% in 2005, 306% in 2006, and 252% for the first three months of this year.

This specialty segment is clearly Spartan's gem -- its motor home, fire truck, and emergency vehicle chassis businesses grew 3%, 36%, and 8% in the first quarter of this year, respectively. But some concerns may be popping up about further growth for the military business.

The current apple of defense vehicle makers' eyes are the huge contracts for mine resistant ambush protected (MRAP) vehicles from the Marines. Force Protection, which has been a big partner for Spartan's defense business, is one of the firms competing for MRAP contracts.

Force Protection is a story in and of itself, and the company has made itself known in a big way recently. But Force Protection's stock has been on a dive since the end of May and has lost 22% of its value. The drop reflects the strong competition showing up for MRAP contracts when many considered Force Protection a shoo-in to grab the lion's share. Not only has Oshkosh Truck stepped in, but ceramic armor maker Ceradyne has announced that it is working on a vehicle that will compete for MRAP contracts, as well

So where does this leave Spartan? Well, the company had a $250 million backlog as of March 31, and in early May it received contracts from Force Protection and General Dynamics worth a total of $108 million. But all this is already known, and investors are concerned with the company's further growth -- so continuing to bring in more of these MRAP contracts will be important, whether it's through Force Protection or other partners.

One CAPS All-Star, dhd1491, weighed in on the stock last month and said that despite the fact that Jim Cramer likes the stock, he does too. As reasons, he cited both the markets that the company sells into and its solid management team.

So do you think Spartan will continue benefiting from military spending? Or will growth quickly start to slow down? Let the community know what you think -- head over to CAPS and share your thoughts with the other 31,000 players currently part of the community. Even if you'd prefer to pass on Palomar, you can check out a couple of the other stocks listed above or any of the 4,700 stocks that are rated on CAPS.

More CAPS Foolishness:

• 3 All-Star Stocks on Fire
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• Stocks of the Week

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 imagined all the people living life in peace, even though it doesn't consider itself a dreamer.