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.
CAPS Rating(out of 5)
Prior or Consensus Estimate
InterDigital (NAS: IDCC)
Q4 11 EPS
Clearwire (NAS: CLWR)
Q4 11 revenue
Don't blindly buy into their heady outlook -- you still need to do some research. Use the announcement as a jumping-off point for additional research.
Not selling out
Lost in the din of InterDigital ending the search for a buyer of its patent portfolio was the news that it would be reporting profits well ahead of expectations. It is big news that it was unable to sell its patents on the market, as it means there will be no easy monetization of its IP. At the same time, analysts also drastically scaled back what they expect from InterDigital for next quarter, slicing earnings forecasts in half.
Having generated nearly $3 billion from its patents, the wireless leader hoped it could entice Intel, Ericsson, or HTC into making a bid, and Microsoft and even Apple were reported to have checked out its wares. It's not so much for a company to have a patent; what's key is the quality of the patent. Analysts now question whether Kodak can monetize its portfolio even in bankruptcy because of low quality, and one analyst has gone on record saying the $12 billion portfolio Google (NAS: GOOG) paid Motorola Mobility is filled with "crap."
Analysts might not ascribe a similar adjective to InterDigital's patents, but being encumbered, the patents aren't as valuable as originally thought, either. At least not to a potential buyer. For InterDigital, they ought to be a strong crutch to lean on going forward. But you can put InterDigital on your watchlist to be alerted if someone reevaluates their value and comes riding to the rescue.
An unclear connection
With InterDigital, the market had such high hopes for the company; not so with Clearwire. So when its results beat estimates, shares soared. The 4G wireless network operator is expected to almost double its subscriber share count based on continued growth in smartphone usage, putting its high-speed wireless services front and center.
The cash infusion it got from Sprint (NYS: S) late last year, along with raising cash on its own, boosted Clearwire's coffers to $1.1 billion, a hefty cash cushion that will enable it to complete its transition from WiMAX to LTE. With revenues doubling this quarter, the network specialist appears to be well on the way to stepping back from the brink. It lost two-thirds of its value this past year as investors seemed to expect the worst from Clearwire.
Highly rated CAPS All-Star EnigmaDude believes there has been a stream of good news for Clearwire lately, especially in a new agreement with China Mobile (NYS: CHL) : "Between the bad news for LightSquared and the good news from China, the outlook for ClearWire is suddenly greatly improved: Clearwire and China Mobile (CHL) announce agreement on TD-LTE Device test specifications and joint interoperability testing plan."
Add Clearwire to the Fool's free portfolio tracker and tell us on the Clearwire CAPS page whether there's a chance it will get its signals crossed on the transition.
Raise your sights
These stocks may have raised expectations, but the smartphone revolution impacting both of them has even wider implications than before. The Motley Fool has discovered three companies quietly cashing in on the smartphone and tablet PC boom. Read the free report "3 Hidden Winners of the iPhone, iPad, and Android Revolution," but hurry because it's available only for a limited time.
At the time thisarticle was published Fool contributorRich Dupreyowns shares of Intel, but he holds no other position in any company mentioned.Click hereto see his holdings and a short bio. The Motley Fool owns shares of Intel, Microsoft, China Mobile, Google, and Apple.Motley Fool newsletter serviceshave recommended buying shares of Google, China Mobile, Apple, Intel, InterDigital, and Microsoft, as well as creating bull call spread positions on Microsoft and Apple. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
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