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 May 10.

As the table shows, these stocks are still very well-regarded by the CAPS community despite their underperformance over the past 30 days. While these are not formal recommendations, let's take a closer look at whether opportunity could be staring us in the face.

MEMC Electronic Materials
There are few ways to prevent shares from getting hammered after a company badly misses analysts' estimates, and MEMC was not able to pull off the feat. Wall Street was looking for a $0.04 per-share profit from MEMC and got a $0.04 per-share loss. The day after the announcement, investors slashed nearly 20% from MEMC's stock price.

MEMC's primary business is selling silicon wafers to semiconductor manufacturers like Taiwan Semiconductor and solar cell manufacturers like Suntech Power (NYSE: STP). Considering that chip giant Intel (Nasdaq: INTC) made major waves by showing off really spiffy numbers when it reported first-quarter earnings, one might think that MEMC would be having a better go of it.

In fact, MEMC's revenue from its semiconductor segment rose nearly 275% year over year, and though growth from the solar group was much more constrained, its revenue was still up slightly from the first quarter of 2009. Unfortunately, lower wafer pricing kept the bottom line underwater as the semiconductor segment stayed unprofitable and the solar segment's operating income narrowed.

MEMC's management did keep its guidance for 2010 unchanged, and even said that "full year revenue may exceed the high end of the previously guided range." However, some investors, like my fellow Fool Anders Bylund, are a bit skeptical of MEMC. Anders highlighted chip designers like Intel and manufacturers like Taiwan Semiconductor as better bets.

ArcelorMittal
Speaking of companies that missed expectations, the world's No. 1 steel producer reported first-quarter EBITDA of $1.9 billion versus expectations of $2.1 billion. Even a positive outlook for the second quarter couldn't keep investors from knocking down Arcelor's stock.

The company does have challenges ahead. For one, key suppliers like BHP Billiton (NYSE: BHP) and Rio Tinto (NYSE: RTP) have forced it into short-term supply contracts that allow the suppliers to pass on rising prices more easily. If Arcelor wants to keep profits up, it will have to wrangle its customers into similar short-term contracts, which is something the customers won't be particularly excited about.

Arcelor does wield serious might in the steel market, though, and with surging growth in China, and recovery in many other parts of the globe (maybe even Europe?), it could be well positioned to start raking in profits again.

ABB
Completing a trifecta of earnings misses, we finish off with Switzerland's ABB. The company reported total first-quarter profit of $464 million, well short of the $502 million that Wall Street was hoping for.

Likely adding to the stock's weakness is the fact that Europe accounted for nearly 40% of ABB's total revenue. Though the huge backstop agreement that the European Union announced may help buoy indebted countries like Greece and Portugal, the region's sovereign finance issues could still create headwinds for capital equipment suppliers like ABB that rely on Europe.

CAPS members, however, have stuck by ABB. Of those rating the company, 1,689 members think the stock will outperform the rest of the market while just 41 think it will underperform. CAPS member brightsun1 recently joined the bullish chorus:

Solid long term energy management play. Playing in the difficult environment of European companies, but, very diversified outside of Europe. Solid dividends.

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 of the community.

Stock declines are concerning enough, but according to Rick Munarriz, hearing these four words is even more worrisome.