7 Highly Rated Stocks on Sale

I am always looking for a good deal, whether that means buying an extra box of Golden Grahams 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 (no relation to the cereal) tells us, by way of allegory, how we can look out for these situations.

In The Intelligent Investor, Graham introduces readers to a wacky chap 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 inconsolably 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:

Data from Motley Fool CAPS as of Nov. 18.

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 Stock Advisor favorite Berkshire Hathaway.

Why so blue?
That's easy, Berkshire's stock is down because all stocks are headed to zero. Right? What? You don't think that all stocks are tumbling into oblivion? Well, then you are obviously in the minority.

Extreme pessimism aside, the drop in Berkshire shows that not even the former market darlings have been spared from Mr. Market's current wrath. It's not totally without basis, though, since investment losses and a soft insurance market helped drag down third-quarter and year-to-date results. Earnings per share for the third quarter fell hard, dropping 77% from the prior year. Year-to-date doesn't look too much better, with earnings per share off 53%.

At the same time, Buffett -- who is usually held up as a paragon of investing -- has started becoming the subject of the inevitable "has he lost his touch?" articles, since many of his equity holdings have lost ground.

What the bulls say
I certainly don't believe that Buffett is infallible; it's possible that his big investments in GE (NYSE:GE) and Goldman Sachs (NYSE:GS) could go wrong. However, it seems to me that though both companies are hitting tough times now, they have good longer-term prospects and he got some pretty smokin' terms with the preferred stock he bought. Of course, to see that you have to shake off recenct bias and consider the fact that we may not be mired in muck forever. At the same time, Buffett has not only been talking up stocks, he's been buying them.

It's also important to remember that though so much is made of Buffett's prowess when it comes to stocks, there's a heck of a lot more to Berkshire Hathaway than its investment portfolio. Though recent insurance profits are down, Berkshire is one of the best property and casualty insurers and reinsurers in the world and owns, among others, the GEICO brand. Outside of insurance, Berkshire owns a host of top-quality companies, ranging from NetJets to Business Wire to See's Candies. Though these businesses will likely see some softness from the economic downturn, they're all strong, well-run companies that should continue to kick out cash for Berkshire for years to come.

There's no need to convince CAPS members that Berkshire is a stock to have on your list. Of the 2,615 members that have rated Berkshire's A shares, 2,539 of them think the stock will outperform, versus just 76 that think it will underperform. And the margin of optimism is even greater when it comes to the company's B shares.

CAPS member Jeffreyw recently gave Berkshire the thumbs-up on the hopes that Buffett could use the current depressed market to shareholders' advantage:

Buffett is the best value investor in the world, and now is his best chance to find incredible values. I just hope he doesn't run out of cash to buy them before the recovery is under way!

So do you think the recent drop has created a good buying opportunity? Or will Berkshire's struggles expand? Let the community know what you think -- head over to CAPS and share your thoughts with the other 120,000-plus members currently part of the community. Even if you'd prefer to pass on Berkshire, you can check out a couple of the other stocks listed above or any of the 5,400 stocks that are rated on CAPS.

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