These Stocks Set the Bar Lower

We know that insider buying, stock buybacks, and raising guidance are considered bullish signs, but what about the opposite side of the trade?

Insider selling isn't always a sign of rough waters ahead -- the insider might need the money for Junior's education, or for other reasons that have nothing to do with the business. And while stock dilution can be a bad thing, splitting a stock to make more shares available can be good in some cases.

Don't look down
What about offering guidance below expectations? When a company forecasts lower 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.

Source: Briefing.com.

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.

Dance away from this stock
I attempted to use Majesco Entertainment's wildly popular Zumba Fitness program as part of a new year's resolution to get back in shape (yes, the imagery it conjures is horrible). But while it confirmed my lack of coordination and inability to dance, Zumba remains a huge hit for the game maker, with Majesco selling more than 4 million units worldwide in its first year.

But impairments on software development costs and license fees led Zumba's creator to report much wider losses than a year ago and to forecast sales and earnings for the coming year that were well below expectations. Majesco has tried to develop additional titles to supplement the fitness leader, but management doesn't expect cash flows will be sufficient to recover its sunk costs. With Zumba accounting for 70% of its revenues in 2011, its fortunes are tied to this one franchise, a very risky proposition for investors.

Although Majesco is offering additional Zumba titles, including one based on Microsoft's motion-capture Kinect technology, unless another blockbuster is found, I foresee it dying off once the craze has run its course. I won't dance on its grave -- we've already established I've got no rhythm -- but I have closed out my outperform rating on CAPS.

Add Majesco to your watchlist, then tell me in the comments section below or on the Majesco Entertainment CAPS page whether you think it's still fit to go the distance.

Growing dim
For anyone who's been watching the results turned in by any of the players in the LED lighting space, the earnings reported by industry leader Cree came as no surprise. Veeco Instruments (Nasdaq: VECO) is expecting a huge drop in earnings when it reports its fourth-quarter results. Sapphire substrate maker Rubicon Technology (Nasdaq: RBCN) is also suffering from oversupply in the LED business.

While LED prices have dropped considerably and will likely decline further, helping to broaden their adoption in the consumer market, the industry is still working off an inventory glut fueled by Chinese subsidies to manufacturers that some analysts feel will linger until 2013. Yet they also believe Cree is the one lighting specialist best positioned to capture as much as a quarter of an $18 billion market by 2015.

CAPS member lovesaves doesn't appreciate Cree's CEO enjoying such rich rewards as he did last year as the company was losing value, but that didn't stop him from joining the more than 1,100 other members in rating the LED leader to outperform the broad indexes. More than 92% of those weighing in agree Cree will light the way ahead.

Add Cree to the Fool's free portfolio tracker and be notified when the runway to future growth is lit.

Looking under rocks
These stocks may have lowered expectations, but The Motley Fool has identified three companies that are quietly cashing in on the explosion of smartphones and tablet PCs. You can get instant access to these companies by clicking here -- it's free! But only for a limited time, so hurry.