2 Stocks That Just Raised the Bar

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No one knows a company better than those who run it. That's why investors will often watch for when insiders are buying company stock or companies are buying back their own shares. These can be bullish signs for a company.

Offering earnings guidance above analyst expectations is also a bullish sign, as over time earnings growth follows sales growth. When a company predicts greater sales profits, we expect its stock price to soon follow.

Sometimes, though, things don't work out as planned, so we'll pair up the increased outlook with the sentiments of more than 180,000 members of Motley Fool CAPS. If the best and brightest stock pickers think a company's long-term potential is outstanding, coupled with the company's own improved sentiment, maybe then investors should take notice, too.


Here are two stocks that recently raised guidance.

Stock

CAPS Rating(out of 5)

Prior or Consensus Estimate

Current Guidance

Period

Krispy Kreme Doughnuts (NYS: KKD) *$0.35$0.35-$0.41FY 13
PetSmart (NAS: PETM) ****$3.01$3.02-$3.16FY 13

Don't blindly buy into their heady outlook -- you still need to do some research. Use the announcement instead as a jumping-off point for additional research.

A jolt of java
Coffee has become an increasingly larger part of many fast-food chains' repertoire. Ever since Starbucks (NAS: SBUX) revolutionized the industry, McDonald's (NYS: MCD) is now just as concerned about its high-margin coffee blends as the burgers it flips. Sure, Dunkin' Brands (NAS: DNKN) wants to sell more doughnuts, but it's mainly competing on its cup of joe.

And now Krispy Kreme Doughnuts is joining the fray, looking to triple its coffee sales over the next three years from 4% of sales to 12%. It used to be the "Hot Doughnuts Now" sign was the dinner bell calling customers like Pavlov's dog; now Krispy Kreme's CEO says if you pass his office "you'll see a sign on the door that says coffee coffee coffee." Think of the slogan "America Runs on Dunkin'," which is selling coffee, not doughnuts.

Whether Krispy Kreme can ever overcome the stigma of its implosion a few years ago remains to be seen, but CAPS member RScottK26 has learned its lesson and makes for a provocative turnaround play.

Interesting turnaround story. I was never a huge fan, but tons of people were, and still are. I think they learned valuable lessons about expanding too quickly, and now their balance sheet looks better and better every qtr. Debt is now minimal, ROE is up over 20%, PEG is under 1, Current ratio almost 2, and P/S is hoving marginally above 1. At $7 not a ton of risk to take a flyer on this one I think. I think it could easily trade above $10 in the next 12-18 months.

Tell us on the Krispy Kreme Doughnuts CAPS page if you think the burned hand learns best, then add the doughnut shop to your watchlist to see if coffee can juice its returns.

Calling the industry to heel
Pet care is proving to be a remarkably recession-resistant industry, with "pet parents" spending upward of $50 billion annually on their "babies." According to the American Pet Products Association, the amount spent on pets in the U.S. is up 23% over the past five years. And sitting there with a grin like the cat that ate the canary is PetSmart, whose own sales have expanded 44% over that same period.

Having heard that privately held Petco expects the industry to expand an additional 33% over the coming five years, Motley Fool blogger Bobby Fisher thinks PetSmart has the financial wherewithal to gain a good share of that growth, despite increasing competition.

Do I have concerns, certainly. There is no 'moat' here. As I said earlier, [Wal-Mart], Target and other 'big boxes' are competing with PetSmart for revenue and of course we've already mentioned PETCO. The saving grace is the size of the market, $55 billion and growing! I see no barrier to PetSmart growing right along with it.

Add the pet care giant to the Fool's free portfolio tracker and tell us on the PetSmart CAPS page or in the comments section below whether the increased outlook also increases your interest.

Raise your sights
Krispy Kreme's addition of high-margin coffee seems like a good move, but they're late to the game leaning on coffee sales. Others have been doing it with huge success for years now. One of the biggest and best is profiled in our special free report: "3 American Companies Set to Dominate the World." You can uncover these top picks today, totally free, by clicking here now.

At the time this article was published Fool contributorRich Dupreyholds no position in any company mentioned.Click hereto see his holdings and a short bio. The Motley Fool owns shares of Wal-Mart Stores and Starbucks.Motley Fool newsletter serviceshave recommended buying shares of PetSmart, Wal-Mart Stores, McDonald's, and Starbucks.Motley Fool newsletter serviceshave recommended writing covered calls on Starbucks and creating a diagonal call position in Wal-Mart Stores. The Motley Fool has adisclosure policy. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.

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