When a company forecasts lower sales or profits, its stock usually takes a hit. It's not always easy to tell whether your company is having a fire sale or burning down. Maybe it is time to get out -- or maybe it's time to buy more!
To help tell the difference, we pair up the dour guidance news with the sentiments of more than 180,000 members of Motley Fool CAPS. If the best stock pickers think the companies still have the power to turn lemons into lemonade, maybe investors should take notice.
Here are two stocks that have recently announced reduced guidance.
CAPS Rating (out of 5)
Previous or Consensus Estimate
SanDisk (NAS: SNDK)
$950 million to $1.1 billion
Gentex (NAS: GNTX)
10%-15% in Q1 2012
Flat for FY 2012
Sources: Briefing.com, Motley Fool CAPS. Note: For Gentex, figures refer to sales growth for rear camera displays.
Don't blindly sell into their bearish outlook -- you still need to do some research. Use the announcement as a jumping off point for additional research.
More like a gouge than a chip
Despite blistering growth in the mobile-communication segment, chipmakers to the market have been working overtime to supply it, and that seems to have led to a glut of inventory. Both SanDisk and Micron (NAS: MU) posted poor earnings, but it was SanDisk's second-quarter forecast that confirmed the weakness, and the stock has continued sliding since, plummeting another 11% on Friday. SanDisk's shares are down 30% in the past month alone.
The inventory issue was worse than anticipated, and SanDisk said prices would fall at a steeper pace in the first half of 2012 resulting in considerably lower price levels for the whole year. Gross margins dropped to 36%, but the carnage isn't over, as the flash memory maker expects gross margins to fall as low as 26% this quarter. It also has to be worrisome that the first unit featuring Intel (NAS: INTC) chips is being released in India. Intel has made forays into smartphones in the past, but this could be the chipmaker's first success in the market. While ARM Holdings is the primary target, SanDisk and Micron don't need Intel crowding the space any more.
CAPS member JohnStuartMill agrees that each new technological leap in mobile-phone communications powers SanDisk further, but like my CAPScall a few weeks ago, in which I bet that the preannouncement had priced in all the disaster, it was a bit premature. Tell me in the comments section below or on the SanDisk CAPS page whether you think it can chip away at the doubts gnawing on its stock.
A super opportunity
Despite supposed record U.S. auto sales that pushed seasonally adjusted sales up to 15 million vehicles, auto-parts maker Gentex provides a different perspective on what's happening in the space. It expects sales of its rear-camera display devices to be flat for 2012 as the government has problems implementing rules that require carmakers to install the devices.
While RCDs are a looked-for trend to provide a catalyst to Gentex's future, its bread and butter, the products that pay the bills, are the auto-dimming mirrors it sells to Ford (NYS: F) , General Motors, and Chrysler, its three primary customers in North America. Revenues in 2011 jumped 26% as the auto industry recovered and sold more vehicles. In the first quarter, sales increased 16%, which is obviously a slowing rate of increase from last year though it faces increased competition from Magna International, which also produces mirrors and RCDs.
Yet 90% of the CAPS members rating Gentex believe it will be able to bounce back and beat the market averages. No doubt as the mandate for RCDs comes into play, it will provide a big boost to its operations, though placing another costly doodad on a car at a time when the automakers are really still struggling to get back on their feet isn't the smartest move.
Add Gentex to the Fool's free portfolio tracker to see whether it can drive off on the road to recovery without having to rely upon government edicts to prop up its business.
Looking under rocks
These stocks may have lowered expectations, but The Motley Fool has identified one company that is operating like a canary in a coalmine. It's The Only Energy Stock You'll Ever Need. You can get instant access to this rising star -- and it's free! But only for a limited time, so hurry.
At the time thisarticle was published Fool contributorRich Dupreyowns shares of Intel, but he holds no other position in any company mentioned. Check out hisholdings and a short bio. The Motley Fool owns shares of Intel and Ford.Motley Fool newsletter serviceshave recommended buying shares of General Motors, Ford, and Intel, as well as creating a synthetic long position in Ford. The Motley Fool has adisclosure policy. We Fools don't 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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