3 Highly Rated Stocks on Sale

I'm 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. This fellow pays you house calls each day, offering 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, offering you premium prices for your holdings. 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 received a maximum five-star rating from our community of investors just 30 days ago:

Data from Motley Fool CAPS as of April 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, let's take a closer look at whether opportunity could be staring us in the face.

GigaMedia
A few years ago, it seemed that combining the words "China" and "games" in a company description was an almost assured recipe for stock market success. However, as the industry has gotten a bit crowded, and an economic rough patch has tested the mettle of players, the market -- or at least its voting-machine side -- seems to be declaring some winners and losers in the industry.

Early last month, the entire industry took a hit when Perfect World (Nasdaq: PWRD), Shanda Games, and Shanda Interactive (Nasdaq: SNDA) all provided disappointments with their respective fourth-quarter reports. Perfect World posted a fourth-quarter earnings miss, while Shanda Games released a disappointing projection for the upcoming quarter.

But the industrywide sell-off may be easier for Perfect World and the Shandas to recover from. After all, all three companies still enjoy significant growth, and each has stayed nicely profitable.

GigaMedia, on the other hand, appears to have hit a brick wall. The company's top line likely finished the year down handily from 2008, and analysts expect that GigaMedia will just barely break even. Meanwhile, the company has agreed to sell a majority stake -- and potentially the whole shebang, eventually -- of its successful gambling software business.

CAPS members certainly seem to dig GigaMedia's stock, and no doubt collaborations like its deal with Electronic Arts (Nasdaq: ERTS) for Warhammer Online are steps in the right direction. Still, I hesitate to join the bulls on this one.

Valero
No one big event has sent Valero shares down, but the stock has steadily crept lower over the past month -- and quite some time before that.

While the rest of the market has bounced back from the 2009 bottom, Valero, along with other major refiners such as Western Refining (NYSE: WNR) and Tesoro, have watched their shares languish. Why? Refining profits remain constrained, even as the economy starts to find its sea legs again.

This trend could be changing, though. As my fellow Fool Mike Pienciak pointed out earlier this month, initial signs now suggest that refining profits could be on their way to recovery. I can't say that I've always been enamored by Valero's management team, but with a stock trading at a mere 0.7 times tangible book value, a turnaround in the refining industry could mean big gains for Valero investors.

UnitedHealth
Investors had to at least hope that an end to the debate over health-care reform would clear up some of the uncertainty surrounding insurers such as UnitedHealth. Yet with the reforms signed into law, UnitedHealth's stock still listlessly bounces around -- and mostly in a downward direction.

Sure, we could say that significant uncertainty remains around the reforms' ultimate impact on UnitedHealth. But while the precise effect of the bill won't be known for a few years, all indications seem to point to an overall net benefit to the company -- or at the very least, a much smaller negative effect than the stock's current valuation implies.

CAPS All-Star Jeffreyw weighed in with a thumbs-up on UnitedHealth prior to the signing of the health-care bill, but I think those thoughts still hold up well today: "... no matter what legislation results, these guys will be providers and find ways to do it profitably, becoming the Wal-Mart of health care...not sure that's good for patients, but it is for investors!"

I've given two 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 currently part of the community.

While these stocks are all currently headed in the wrong direction, Rex Moore thinks he's found seven stocks that are all moving in the right direction.