Bring On the Pain!

Lowering guidance can bring on a world of pain for a company. Not only does the stock take a hit when the news is announced, but it can also continue to fall for quite a while afterwards. Investors face a dilemma: Does the lower guidance mean it's time to join the mad dash for the exits, or does it present a buying opportunity in disguise? 

A guide to the future
It's not always easy to tell whether your company is having a fire sale or just burning down. Motley Fool CAPS can help make understanding the difference a lot simpler.

The investor-intelligence database compiles the opinions of more than 115,000 professional and novice investors, who vote on whether they think stocks will outperform or underperform the market. Research shows that four- and five-star-rated stocks offer you the best chance of beating the market. A high CAPS rating with lowered guidance could present you with a real deal.

Here are five companies that have recently guided lower, coupled with what CAPS investors think:

Sources: Briefing.com, Motley Fool CAPS.

Now, this isn't a list of stocks to buy or sell short. Just treat it as a list for further research.

Out of stock
As with Abercrombie & Fitch (NYSE:ANF) last week, we're continuing to see a number of retailers scale back expectations in anticipation of a poorly received back-to-school season. Although American Eagle Outfitters beat expectations on same-store sales with a 5% decline (analysts had forecast a 6.5% decrease), the teen retailer could only reaffirm its already reduced earnings outlook.

CAPS member kahunacfa believes that there may be an opportunity to pick up shares of the Motley Fool Stock Advisor recommendation at even lower prices if the holiday shopping season doesn't work out. Still, kahunacfa thinks American Eagle's current valuation makes it at least worth dipping your toe into the water:

American Eagle has been struggling during the current Recession that may not end until the end of 2009 or early 2010. Yet, at the current multiple of 9.07 the shares have some attraction-enough, at least for a partial nibble of 20% of a full position in my IRA.

If holiday sales are disappointing, there may be a better buying opportunity in January or February to add another 20% or more below the ten dollar per share level.

LCD screen maker Corning saw its stock walloped when it said it expected the tight economy to affect the sales of flatscreen TVs. The company has long held to the belief that TV sales are somewhat immune to the vagaries of recessionary consumer spending, but that might hold true for only the old cathode-ray-tube styles. High-end TVs are suffering from a glut after manufacturers overestimated demand. We got one early warning last month, when Himax Technologies (NASDAQ:HIMX) also scaled back expectations.

CAPS member cfassett finds Corning's underlying business sound, and believes the sell-off results from investors focusing only on the near term, without considering the longer-term trends. "Recent downward price spike is overblown given the solid earnings and growth stream. It is a classic case of the market overselling on quarterly news despite the solidity of the underlying business."

Guide on!
Looking at stocks whose shares have taken a dive on diminished outlooks can be a painful experience. It pays to start your own research on these stocks on Motley Fool CAPS. Read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made -- all from a stock's CAPS page. Your input, though, can help guide other investors to higher prospects for growth, even in the face of lower guidance. Head to CAPS now, and let your voice lead the way.