Late Getting Back In? Don't Fret Yet.

There may be some consolation if you're worried you missed a market bottom. True, stocks have rallied hard since March lows, pushing the market as a whole much closer to our estimate of fair value. However, on an individual stock level, a number of quality companies could easily hit 5 stars again if the recovery hiccups.

We used the  Premium Stock Screener to generate a list of stocks to watch. We wanted to find stocks that were recently 5 stars, but have since run up and, as a result, dropped down to 3 or 4 stars. (Our stock star rating awards stars based on a company's discount to our fair value estimate, adjusted for its risk.) We sought a list of stocks to keep an eye on so we'd be able to act quickly if they again approach our Consider Buying prices.

We limited our search to 3- and 4-star stocks with wide economic moats and low to medium fair value uncertainty. These criteria returned 90 stocks as of Aug. 21, 2009.  Click here to run this screen yourself. (Not a Premium Member? Give us a try with a 14-day free trial.)

From that list, we delved in to take a look at some individual stocks. If you click the Fair Value option on a stock's chart, you can track how the stock has moved relative to our estimate of its fair value. A few stocks stood out to us as potential buys if the market dips:

 3M (MMM) 
Fair Value: $85.00 | Current Price: 72.64 | Consider Buying Price: $68.00 | Moat: Wide | Fair Value Uncertainty: Low
Like many other stocks, 3M spent the period from fall 2008 undervalued. The stock held on to its 5-star rating until July 23, when its price increased toward its fair value, and it dropped to 4 stars. 3M's stock has been trading near $72 for the last several days, not far above our Consider Buying price of $68 per share.

Why it's worth considering: Over its long history, 3M has invented some of the world's greatest products. We think the firm's innovative culture, defensible patents, and low-cost manufacturing have carved a wide moat around its business that will enable the company to reap outsize rewards over the long run.  Click here to read the full Analyst Report.

 Caterpillar (CAT) 
Fair Value: $51.00 | Current Price: $47.30 | Consider Buying Price: $35.70 | Moat: Wide | Fair Value Uncertainty: Medium
Caterpillar's stock was 5 stars until it dropped to 4 stars on July 20, and to 3 stars less than a week later. The stock's increase occurred after the company reported better-than-expected second-quarter earnings. Caterpillar's rapid rating change over the past month demonstrates how quickly a stock can converge on its fair value in the current economic climate. If the stock should dip a bit below $36 again, it will reach 5-star territory.

Why it's worth considering: A flurry of economic distress has temporarily derailed Caterpillar's growth engine. Although 2009 will prove to be a challenging environment, we believe Caterpillar can get back on track for healthy long-term expansion. Caterpillar's first-rate manufacturing capabilities, unparalleled distribution network, and renowned brand name have solidified its standing as one of the world's premier industrial firms.  Click here to read the full Analyst Report.

 Campbell (CPB) 
Fair Value: $36.00 | Current Price: $31.12 | Consider Buying Price: $28.80 | Moat: Wide | Fair Value Uncertainty: Low
Campbell was a 5-star stock until June 25. While it has spent nearly two months at 4 stars, it is trading not far above its Consider Buying price of $28.80.

Why it's worth considering: Weak global macroeconomic conditions and elevated commodity costs are presenting challenges for Campbell. However, we believe the firm's dominant competitive position in the U.S. soup industry, as well as its investments to reshape its portfolio and expand internationally, should enable the firm to continue generating solid cash flows for the long term.  Click here to read the full Analyst Report.

The Bottom Line
We think there will still be plenty of opportunities to snag great companies at relative bargains, and indeed, many high-quality firms are currently trading at attractive prices. And remember, although we do have specific Consider Buying prices for the stocks we cover, don't anchor too narrowly on that dollar-and-cents target. If a stock is close to our Consider Buying price, a few pennies here or there shouldn't hold a long-term investor back if the opportunity looks appealing.

Stocks might not become as undervalued as they were a few months ago, but many could easily return to being solid buys in this still-uncertain economic environment. If some of your favorite names look a little too rich at current prices, add them to a Watch List and wait patiently. Use the My View feature in Morningstar.com's Portfolio Manager to create a custom layout with columns for current price, Consider Buying price, and star rating to track when they are approaching 5-star prices. You can also set alerts to receive e-mail notifications.