7 Highly Rated Stocks on Sale

I am always looking for a good deal, whether that means buying three boxes of Frosted Mini-Wheats when they go 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 tells us, by way of allegory, how we can look out for these situations.

In The Intelligent Investor, Graham introduces readers to a crazy guy 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, offering you premium prices for your holdings. At other times, he'll be totally depressed about the future, offering to sell you his wares 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 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 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 ChipMOS Technologies.

ChipMOS' slow leak
Behaviorally, investors often react to lousy news in one of two ways. In the first and more exciting scenario, everyone freaks out all at once, hitting the sell button as fast as they can. (Can you say "triple sell"?) That's how you end up with big 25% drops, like we saw with STEC yesterday.

The other type of sell-off happens more slowly, eating away at the stock bit by bit. In this scenario, investors who are on the fence thanks to the bad news are slowly pushed over the edge as everyone else starts selling. Like the proverbial Chinese water torture, holders just can't take the drops any more; they give in and sell. This has been the fate recently for ChipMOS; the stock has slowly lost 16% of its value in dribs and drabs over the past month.

In mid-April, the company announced that sales for the month of March were up 28% year over year, and that revenue for the full first quarter topped the previous year by 31%. The stock didn't react immediately to that news, but started its slow sell-off shortly thereafter. The biggest single-day drop came when the company announced its full first-quarter results. Despite the strong top-line performance, margins on both the gross and operating lines came under pressure.

Thanks to the shrinking margins, as well as some non-operating costs the company recorded in the quarter, net income was down both sequentially and on a year-over-year basis.

Many CAPS players have turned an interested eye toward ChipMOS, largely because of its low valuation on both a PEG and price-to-book value basis. CAPS All-Star HistoricalPEGuy sums up the opportunity:

With such a low PEG (even if we cut the analyst estimates in [half]) and the stock starting to chart into book value territory, it's hard to stay on the sidelines. There just doesn't seem to be much downside risk, but the upside potential looks huge. If they grow at 20% ... the P/E of 11 simply is too low compared to its peers, [which are at] about 22.

So is ChipMOS done shedding value, and ready to take off? Let the community know what you think -- head over to CAPS and share your thoughts with the other 29,000 players currently part of the community. Even if you'd prefer to pass on ChipMOS, you can check out a couple of the other stocks listed above -- or any of the 4,500 stocks rated on CAPS.

For more CAPS coverage:

• Wall Street's Wish List
• Stocks of the Week
• 5 More Stocks for Fast Cash

Fool contributor Matt Koppenheffer does not own shares of any of the companies mentioned. You can check out Matt's CAPS portfolio here, or tune into his CAPS blog here. The Fool's disclosure policy taught Mims what it means to be hot.