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 it's 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.

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 Jan. 19.

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 further research. I'll even get you started with some thoughts on Brasil Telecom and Tele Norte Leste Participacoes.

Why so blue?
The big decline in Brasil Telecom shares over the past month highlights the trouble with trying to make a quick buck by betting on acquisitions.

When a company is being acquired, it's rare that its stock price will immediately rise to the proposed takeover price. Typically known as "merger arbitrage," some investors will buy up the stock of an acquisition target and collect a small gain if the acquisition is completed.

A look at Burlington Northern Santa Fe's stock, for instance, shows that it's still roughly $1 below the buyout price offered by Berkshire Hathaway (NYSE:BRK-B). An investor could buy Burlington's stock now and collect that extra dollar if Berkshire follows through with the deal.

But the key word in all of this is "if." Though most acquisitions go through as planned, when a company backs away, it typically leaves the target's stock worse for the wear. For investors trying to grab the small merger arbitrage gains available, one big misstep can wipe out a bunch of positive outcomes.

Which brings us back to Brasil Telecom. Last year, the company was acquired by Tele Norte Leste Participacoes, but Tele Norte hasn't completed a planned share purchase from minority investors in Brasil Telecom. That deal took a major step backward last week when Tele Norte halted it because of concerns over legal costs at Brasil Telecom.

It appears that the deal will likely still go through, but if it does, it will probably be at a lower price. And for anyone arbitraging Brasil Telecom's stock? Well, it was likely a pretty painful week.

What the bulls say
At this point, an investment in Brasil Telecom is largely a speculative bet on whether the rest of the share purchase will go through, and, if so, at what price. And I can't say that I'm terribly interested in that.

But what about Tele Norte? With the addition of Brasil Telecom, the company has become a monster in the Brazilian telecom market. And that's not a bad position to be in, since Brazil is one of the hottest economies in the world.

And I'm not the only one who thinks Tele Norte might be worth a look. More than 600 CAPS members have rated the stock an outperformer, against just 16 who think it will lag the market. All-Star foontok recently gave Tele Norte's stock a thumbs-up, saying:

Landline, broadband, and wireless in a growing market. Second largest wireless service in Brazil. As a Brazilian company, it has a home field advantage against the likes of [Vivo Participacoes (a subsidiary of America Movil (NYSE:AMX)), Portugal Telecom, Telecom Italia, and Telefonica]. Great dividends.

But here's the important question: Do you think the recent drop has created a good buying opportunity? Or will Tele Norte's stock continue to struggle? Head over to CAPS and share your thoughts with the other 145,000 members. Even if you'd prefer to pass on
Tele Norte, you can check out a couple of the other stocks listed above or any of the 5,300 stocks that are rated on CAPS.

The best thing that you can do for your portfolio in 2010? Work on your patience.