7 Highly Rated Stocks on Sale

I am always looking for a good deal, whether that means buying an extra box of Cocoa Puffs 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 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 and offer you premium prices for your holdings, while at other times he'll be totally 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:

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 Cryptologic.

Thanks a lot, Uncle Sam
Cryptologic is a provider of software and services for the online gaming (read: gambling) market. See the problem yet?

In its year-end filing, the company gives a three-year history that starts off by saying, "The global online gaming industry including the United States grew from $5.7 billion in 2003 to $10.7 billion in revenue in 2005." It then quickly continues on to the juicy part, where the U.S. government issues the Unlawful Internet Gambling Enforcement Act (UIGEA), which pretty much says that online gambling in the U.S. is illegal.

The UIGEA was approved in September 2006, and now, eight months later, Cryptologic is still very much alive and kicking -- though maybe not quite to investors' satisfaction. As of the most recent quarter, the company's revenue was down 27% year over year, and though it stayed profitable, it did so at a much lower margin. Possibly more distressing is the fact that the company, which historically has produced a lot of cash, burned through $11.1 million in operations for the quarter.

The issues facing the company make me think of something Berkshire Hathaway head honcho Warren Buffett said earlier this month at the Berkshire annual meeting. When asked for his take on whether gambling would continue to be a good business, Buffett replied that as long as it stays legal, it will continue to be a very good business. He also added that as it becomes easier for people to gamble, there will likely be even more gambling going on.

So the question might be: Is anybody making it easier for people to gamble than Internet gaming companies?

Not having full legal access to the gambling-hungry U.S. population is a huge concession, but Americans aren't by any stretch the only group that enjoys gaming. Even before the UIGEA legislation, the majority of Cryptologic's revenue came from non-U.S. sources. While CAPS players are not all fans of gambling, many of them do see opportunity to pick up undervalued shares of Cryptologic.

CAPS All-Star bmw201030 said, "Since recent US legislation, the stock has been a drag. Mr. Market is once again over reacting. Most of this company's revenues come from overseas not from the US. While the impact is small the stock price drop was too much."

Crazykling, another CAPS All-Star, adds: "I like the short term prospects for a more appropriate price, I like the long term growth potential for online gambling, I like the non-US dollar revenue to hedge inevitable decline of [the dollar], I like the fact it's Toronto/Irish based and has government contracts which builds trust worthiness." Crazykling also cites the stock's relatively low P/E ratio, its relationship with Playboy, and the fact that Mohnish Pabrai holds a 12%-plus slug of the stock as reasons to give this beat-up stock a second look.

So is Cryptologic worth the gamble? Or do you have to be playing full tilt to take a chance on it? Let the community know what you think -- head on 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 Cryptologic, 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:

• The 5-Sigma Report
• Stocks of the Week
• 6 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 in to his CAPS blog here. Playboy is a Motley Fool Rule Breakers choice. Berkshire Hathaway is an Inside Value pick. Cryptologic is a Hidden Gems selection. Optimal Group is a choice of the Fool's Pay Dirt service. You can check out any of our newsletters with a 30-day free trial. The Fool's disclosure policy taught Mims what it means to be hot.