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 its 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:


30-Day Return

1-Year Return

Current CAPS Rating
(5 stars max.)

Sigma Designs (NASDAQ:SIGM)




Abbott Laboratories (NYSE:ABT)




China Medical Technologies (NASDAQ:CMED)




Ceradyne (NASDAQ:CRDN)








Diageo (NYSE:DEO)




Procter & Gamble (NYSE:PG)




Data from Motley Fool CAPS as of March 24.

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 some further research. I'll even get you started with some thoughts on Ceradyne.

Why so blue?
Despite being able to provide bulletproof armor for soldiers, Motley Fool Rule Breakers pick Ceradyne has found over the past year that its stock isn't quite so bullet-resistant. The past month's decline was thanks to a less-than-stellar outlook when the company announced its fourth-quarter results.

Though earnings per share of $0.81 met Wall Street's expectations, the company cut its 2009 earnings expectation from $2.30 per share to a range of $1.60 to $2. The uncertainty has come from Ceradyne's XSAPI armor, which is designed to stop armor-piercing bullets. Though the company has a five-year ID/IQ (indefinite delivery/indefinite quantity) contract for nearly $2.4 billion from the US Army, it has yet to receive its first production order for the plates, and I can only imagine that the uncertainty from such a massive order wreaks havoc on a company's budgeting process.

What the bulls say
The good news for Ceradyne is that it does have that huge contract from the Army, and it also has the financial wherewithal to sustain itself while it waits out the first order. For the full year 2008, the company managed to churn out more than $150 million in operating cash flow on just over $100 million in net income. It has the interest payments on its $121 million in debt well covered, and it's sitting on a cool $220 million pile of cash and short-term investments.

Though there have been some bearish comments on CAPS lately relating to the current outlook for the defense industry, the stock remains a perfect five stars and has nearly 1,400 fans. One of those Ceradyne bulls, djwhr1, chimed in back in November, saying:

This company is very well managed with competent and forward thinking leadership. Very small float stock. Although about 60% of revs are now military the goal is to bring that down to 50%. The need for individual body armor will continue and they have some unknown but possibly great potential in vehicle armor. In addition, they have some huge potential growth areas on the horizon. Stock is a buy at current prices.

So do you think the recent drop has created a good buying opportunity? Or will defense spending pull back and whack Ceradyne? Let the community know what you think -- head over to CAPS and share your thoughts with the other 130,000 members. Even if you'd prefer to pass on Ceradyne, you can check out a couple of the other stocks listed above, or any of the 5,300 stocks that are rated on CAPS.

More CAPS Foolishness:

Diageo and Procter & Gamble are Motley Fool Income Investor recommendations. The Fool owns shares of Procter & Gamble. Ceradyne and Sigma Designs are Motley Fool Rule Breakers picks. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Matt Koppenheffer does not own shares of any of the companies mentioned. You can check out what Matt likes in CAPS by visiting his CAPS portfolio. The Fool’s disclosure policy offers you one Schrute buck for reading this far.