7 Highly Rated Stocks on Sale

I'm always looking for a good deal, whether that means buying three boxes of Cocoa Puffs when they go 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 tells us, by way of allegory, how we can look out for these situations.

In "The Intelligent Investor," Graham introduces readers to a crazy dude named Mr. Market. Mr. Market's game is to pay you house calls on a daily basis, offering to sell you interests in businesses he owns, or to buy from you interests in businesses that 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 totally depressed about the future, and he'll offer to sell you what he has for as low as pennies on the dollar.

Need a "for instance"? Just note the quick 400-point drubbing the market took on Tuesday.

So to find some of the stocks 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:

As the chart shows, these stocks are all still well-regarded by the CAPS community, despite their major underperformance over the past month. While these aren't formal recommendations, they could be a great place to kick off some further research. I'll even get you started with one of the stocks that caught my eye: Bio-Rad Laboratories.

Bio-Rad, which sells supplies and systems into the life sciences industry, has seen the pressure applied since it released its last earnings report. In the quarterly conference call, the company said that market headwinds, including increased competition, could nibble away at operating earnings in 2007. The stock responded by losing 7% the following trading day.

Making matters worse was the follow-up downgrade by Robert W. Baird & Co. from "outperform" to "neutral." This helped the stock ease another 1%, before yesterday's entire market sell-off scared another 4% out of the stock. Though Baird's downgrade was not an outright sell recommendation, it is worth noting -- the firm's buy and sell recommendations are tracked in CAPS, and so far, it has put up a pretty decent record.

CAPS players have stayed strongly behind the stock, even through the softness of the last month. Of the stock's 37 ratings on CAPS, all 37 are outperforms, including 11 from CAPS All-Stars. CAPS player Doughboy33 shared his thoughts on the recent quarter:

"The coming year will be down due to headwinds, but management's long term track record is exceptional. The company is well positioned in core life science and clinical diagnostics businesses, and the stock is inexpensive relative to its peers. Illiquidity may cause near term volatility but over a several year horizon, you can sleep soundly with this one."

CAPS All-Star ElViking also chimed in with an optimistic perspective on the Baird downgrade:

"Yay for analyst downgrades! They are self-fulfilling prophecies that are old news once they come out, and they put stocks on sale."

Overall, Bio-Rad, which is also a leading provider of diagnostic tests for bovine spongiform encephalopathy (a.k.a. mad cow disease), has been a steady performer for well over a decade. Margin contraction is certainly a concern, but the company has seen margins ping-pong within a certain range quite a bit over the past 10 years. For now, at least, CAPS players seem willing to take the long view in favor of a management team that has built a nice-looking operation and owns a significant stake in the company.

So are you with the rest of the CAPS crew or against them? Either way, you can let them know simply by logging on to CAPS. In addition to the seven picks mentioned here, there are nearly 4,000 other stocks rated on CAPS and more than 23,000 investors participating in making it a powerful tool for stock research.

For more CAPS coverage:

• Check out some other Wall Street upgrades and downgrades.
• Some fresh IPOs.
• Some stocks looking to turn it around.

Fool contributor Matt Koppenheffer is currently ranked 3,294 out of 23,585 players on CAPS. You can check his CAPS portfolio here, or tune in to his CAPS blog here. He does not own shares of any of the companies mentioned. First Marblehead is a Motley Fool Hidden Gems pick. Even mad cow disease is no match for the Fool's disclosure policy. Mooo!