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 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. 27.

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 Motley Fool Stock Advisor recommendation Cemex.

Why so blue?
It's earnings season and that means companies that disappoint investors with lackluster reports are seeing their stock prices get whacked. It was an earnings shortfall that led to much of the drop in Cemex's stock.

Cemex reported a positive $265 million in income from continuing operations after suffering a $743 million loss during the same quarter of last year. Unfortunately, that was the best-looking number in the company's report. Sales fell 17%, overall operating income dropped 72%, and a $0.22- per-share loss fell well short of the $0.15 loss analysts were expecting.

No head-scratching is required to figure out why Cemex's numbers looked so dismal. Around the world, sales volumes of cement, ready-mix, and aggregates continued to fall. In the U.S., for example, volumes of the three products fell 32%, 38%, and 36%, respectively. Meanwhile, prices also continue to slip, and in Spain prices for the three products dropped 16%, 14%, and 3%, respectively.

But while the business environment has presented significant challenges for Cemex, much of the company's story still revolves around its huge debt burden. While the 37% year-over-year decline in EBITDA certainly makes the company's debt obligations even more worrisome, it did make some progress in handling its debt during the quarter. Not only did it put proceeds from the $1.7 billion sale of its Australian operations toward debt, but it completed new debt issues and exchanges to help deal with the debt coming due in the near term.

What the bulls say
So Cemex's business is getting trampled by the global economy while the company trudges along under an immense debt burden. Could this possibly be a stock worth taking a chance on?

If you ask CAPS members, the answer is a very clear "oh yeah!" More than 4,200 CAPS members have rated Cemex's stock an outperformer, while just 139 think it will lag the rest of the market. CAPS member raaschjt recently joined the bullish chorus and said:

They have a near monopoly in the Latin-American Cement world. The base resource is inexpensive and the construction techniques of Latin America are much more concrete-based than in the U.S. More acquisitions, while incurring debt, increases the market share. I'm in this for the long-haul.

As for valuation, though the stock's 2010 price-to-earnings ratio of nearly 27 looks pricey, on the basis of sales or book value, Cemex's stock is still trading below the levels it has in the past.

But here's the important question: Do you think the recent drop has created a good buying opportunity? Or will Cemex'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 Cemex, you can check out a couple of the other stocks listed above or any of the 5,300 stocks that are rated on CAPS.

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