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
Cisco (NAS: CSCO)
$0.44 to $0.46
Teva Pharmaceutical (NYS: TEVA)
$5.30 to $5.40
Don't blindly sell into their bearish outlook; you still need to do some research. Use the announcement as a starting point for additional research.
Walk this way
Time and again we're told the market looks forward, not backward, so companies that report decent earnings for the previous quarter can still be tagged if their guidance isn't as robust or upbeat as Wall Street thinks it should be. Such was the situation with tech bellwether Cisco, which turned in a yeoman's effort for its fiscal 2012 third quarter but offered depressing guidance for the fourth.
Weighing the network equipment maker down was a global financial situation that teeters on calamity, though in this Cisco is not alone. As Fool writer Alvin Gonzales reports, Hewlett-Packard (NYS: HPQ) has also found uncertain economic conditions impacting its growth throughout Europe, while Juniper Networks (NAS: JNPR) suffered a 23% sequential drop in revenues from the region.
But it's important to recognize that this is a global circumstance -- not something endemic to Cisco itself. Considering the upheaval it has already gone through, had it been company-specific, it would be worrisome. The fact that it's systemic means the beating Cisco's stock has taken can be seen as a buying opportunity, which the CAPS community certainly agrees with.
CAPS member jasonstulgate points to Cisco's "multi-sector leadership strategy" to highlight how its diversity can preserve its growth, but you can tell me in the comments section below or on the Cisco CAPS page if you think all the moving parts will stave off stagnation. Then add it to the Fool's personalized stock tracking service to be updated on where it moves next.
A rough patch
And Europe weighs on Teva Pharmaceutical as well, as harsh times are causing distributors to reduce their inventories. Add in currency fluctuations and reforms of the continent's health-care system, and Teva says the total impact will be about $1 billion.
Teva has a thriving branded-drug business that typically hides in the shadow cast by its generics business but contributes some $8 billion annually to revenues. Multiple-sclerosis therapy Copaxone alone accounts for almost half. Still, generics make up almost $11 billion in sales. And because of delayed releases on some big-name drugs, as well as no-gos on such blockbusters as generic versions of GlaxoSmithKline's Avandia and Pfizer's (NYS: PFE) Lipitor, the segment has been performing below expectations.
With a new CEO at the helm and the eventual introduction of top generics, Teva should get its business properly aligned. Europe will remain a wild card, but even there the lure of lower-cost generics will propel one of the top drugmakers to the forefront. As its own brands gain more traction (though they will eventually face patent expiration, just like those pharmaceuticals it hopes to capitalize on), I see it as a long-term winner.
Shares of Teva have pulled back 20% from their highs, so I've rated it on CAPS to outperform the market indexes over the next five years or so. As visibleinvesting correctly notes, demographics are in its favor: "Aging population, wealth of emerging nations, once of prevention, use of generics-good and improving ROI and GM."
Add the generic-drug maker to the Fool's free portfolio tracker to see if it can recover, then let us know on the Teva Pharmaceutical CAPS page what you think the prescription for gaining ground should be.
Looking under rocks
I'm not the biggest fan of investing in Chinese stocks, and The Motley Fool has found one stock that tips on its head the notion that the future will be built overseas. View the new special report "The Future is Made in America," which will put an end to the "Made in China" era for good. Check it out today, because it's available for a limited time only.
At the time thisarticle was published Fool contributor Rich Duprey owns shares of Pfizer and Cisco Systems, but he holds no other position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Cisco Systems.Motley Fool newsletter services have recommended buying shares of Pfizer. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.