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 Houston Wire & Cable.

Houston, we have a problem
Unhappy investors sent Houston Wire & Cable's stock tumbling more than 25% on Aug. 1 when the company reported its second-quarter earnings. Earnings per share for the quarter missed Wall Street analysts' expectations by 9%, but the magnitude of the stock's drop likely has more to do with even higher expectations by HWC's investors.

After being bought from Alltel (NYSE:AT) by private equity firm Code, Hennessy & Simmons in 1997, HWC re-entered the public markets last year when it completed a June IPO. At the time of the IPO, HWC had the wind at its back in a big way. In the first half of 2006, sales were up 68% year over year, and gross margins were at record levels of 28.2%.

Against the backdrop of a knock-'em-dead 2006, the company reported sales growth of just 6% for the second quarter of 2007 and gross margins of 26.6%. For any investors expecting another 50%-plus jump in sales, this certainly was a disappointment.

For the rest of us, though, the drop -- which left the stock trading at just 11.7 times the midpoint of management's EPS projection for 2007 -- could be a good reason to take a closer look. HWC focuses on the specialty wire and cable market, which is expected to benefit from continued buildouts and upgrades of power plants, capital spending from industrial companies, and infrastructure improvement in the U.S. -- including in the areas of drinking water and wastewater treatment.

CAPS player bigtalldaddy rated HWC an outperform after the earnings miss, saying that it was "unfairly punished." Meanwhile, CAPS All-Star sergd likes HWC's low level of debt, low P/E multiple, and relatively high margins.

So did the stock's price drop create a good buying opportunity? Or is the slower growth a good reason for a much lower price? Let the community know what you think -- head on over to CAPS and share your thoughts with the other 60,000-plus players currently part of the community. Even if you'd prefer to pass on Houston Wire & Cable, you can check out a couple of the other stocks listed above -- or any of the 4,900 stocks that are rated on CAPS.

More CAPS Foolishness:

• 5 All-Star Stocks on Fire
• Invest Like a Pro: Brown Investment & Advisory
• 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. LCA-Vision is a Motley Fool Stock Advisor recommendation. The Fool's disclosure policy doesn't know much about specialty wires, but it knows that bargains come from all over the place.