3 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.

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 April 12.

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, let's take a closer look at whether opportunity could be staring us in the face.

VASCO Data Security
Investors who have followed VASCO for any length of time should hardly be shaken by a mere 10% downswing. Since hitting a peak in late 2007, VASCO's stock has been wildly volatile -- and most of it to the downside. From peak to trough, the stock fell roughly 90%.

The big drop was a reaction to the sudden brick wall that VASCO hit in late 2007 as heady growth abruptly turned into declines in profit. For 2009, the company's earnings per share were cut in half from the previous year. But that was then.

Today, investors have to consider whether demand for VASCO's products from major customers such as Wells Fargo (NYSE: WFC) and Activision Blizzard (Nasdaq: ATVI) will get a tailwind from the recovering economy and whether the company can fight off tough competition from the likes of EMC subsidiary RSA Security. The stock carries a much lower price tag than it previously did, but expectations for the company have fallen as well. Analysts estimate that the company will see earnings fall again in 2010 before recovering to $0.36 per share in 2011.

While CAPS members have given VASCO a strong vote of confidence, paying a 20-plus earnings multiple on 2011 earnings is not my idea of a bargain.

American Oriental Bioengineering
It's easy enough to figure out why American Oriental's stock dropped. In late February and early March, the stock spiked. It seems that some investors may have gotten a little excited about the company's March 15 earnings announcement.

Unfortunately, the numbers didn't quite pan out the way investors had hoped. Though earnings jumped significantly from the fourth quarter of 2008, the $0.14 in earnings per share that it reported were a couple pennies shy of Wall Street's expectations. For those keeping score at home, that's at least four quarters in a row that American Oriental's earnings have disappointed.

Now I could throw out there that as a small pharmaceutical company, American Oriental has the potential to snap up market share in the fragmented Chinese market and become the Johnson & Johnson (NYSE: JNJ) of China. But in its early years, J&J developed some truly revolutionary products like commercial sterile surgical dressings, dental floss, and ready-made bandages (we usually call them Band-Aids). With the wide open Chinese market at its fingertips, American Oriental certainly has the opportunity, but it needs to do more with that opportunity than it has up to now.

If you ask me, until American Oriental turns its act around, I think investors are much better off with the actual Johnson & Johnson.

Petrobras
There's a lot to be said for a good energy company like Petrobras, but there's not a whole lot that can be done when energy prices are falling. So as oil prices started to slip from the upper $80s, Petrobras' stock followed suit.

But does that mean that investors should be recoiling from Petrobras? I don't think so. Being an emerging energy giant based in a major emerging economy makes Petrobras a pretty darn attractive dividend-paying, megacap stock. And given that Petrobras trades at a discount (on a P/E basis) to other big boys like Chevron and ExxonMobil (NYSE: XOM), it could be the pick of the big-oil bunch.

I've given one of these stocks a thumbs up in my CAPS portfolio. But here's the important question: What do you think? Head over to CAPS and share your thoughts with the other 160,000-plus members who are part of the community.

Looking for a dividend stock that's better than Petrobras? Jordan DiPietro thinks he's found the best dividend stock, period.