No one knows a company better than those who run it. That's why investors will often watch for when insiders buy company stock, or whether 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 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 investors should take notice, too.
Here are two stocks that recently raised guidance:
CAPS Rating(out of 5)
Prior or Consensus Estimate
Caterpillar (NYS: CAT)
FY '12 EPS
Westport Innovations (NAS: WPRT)
$240 million to $250 million
$260 million to $264 million
FY '12 Revenue
Source: Yahoo! Finance.
Don't blindly buy into their heady outlooks -- you still need to do some research. Use the announcement as a jumping-off point for additional research.
Doing some heavy lifting
Heavy-machinery manufacturer Caterpillar is placing a big bet on China to help it grow. But the economic engine there might be grinding to a halt. In the third quarter, China was the only market for Caterpillar that had lower construction machinery sales than the year-ago period.
Caterpillar is looking for a recovery to start in China and forecasts economic growth of 8.5%. Elsewhere in Asia, though, sales were more robust, and excluding the acquisition of Bucyrus, revenues were up 32% year over year in the Asia/Pacific region.
Deere is also looking to China for growth -- along with other emerging economies including Brazil and India -- and plans on opening six new factories to accommodate expected new demand. Another heavy equipment company, crane maker Manitowoc (NYS: MTW) , also expects China, India, and Brazil to do the heavy lifting on growth. All three are similarly valued on future earnings expectations, but Cat offers the best prospects based on growth estimates.
Given I am bullish on the U.S. economy despite being bearish on CAT, I foresee the U.S. and much of the rest of the world benefiting from the collapse of the commodity bubble. Since we export next to nothing to China this benefit will more than out weigh the costs of a struggling Chinese economy.
Put Caterpillar on your watchlist to be alerted if China swings to either extreme.
It's a natural
The forces that fueled a decline in natural gas companies are the exact same ones that are pushing Westport Innovations to all-time highs.
Natural gas is so plentiful and with new technologies and drilling techniques permitting greater access to reserves previously unattainable, we are awash in it. Inventories continue to exceed five-year averages even though driller Chesapeake Energy (NYS: CHK) is scaling back its rigs in production, expecting its dry gas rig counts will fall 67% this year. The pricing of natural gas is also at some of its lowest levels in a decade.
With oil now over $100 a barrel again, it makes natural gas vehicles much more of an economically viable alternative. Westport, a manufacturer of natural gas engines, should be a natural beneficiary of these trends as vehicle makers line up to partner with it. As Clean Energy Fuels (NAS: CLNE) spreads its fueling stations more widely, more car and truck makers will take advantage of the chance to make low total cost of ownership vehicles.
Westport Innovations is by far my best outperform pick on CAPS (oh, to have put real money on this company back in 2008!), and I'll maintain that rating going forward. Add the alt fuel engine leader to the Fool's free portfolio tracker, and get ready for it to rev its engines even more.
Raise your sights
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At the time thisarticle was published Fool contributorRich Dupreyholds no position in any company mentioned.Click hereto see his holdings and a short bio.Motley Fool newsletter serviceshave recommended buying shares of Westport Innovations and Chesapeake Energy. 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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