2 Stocks That Just Raised the Bar

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:

Stock

CAPS Rating (out of 5)

Prior or Consensus Estimate

Current Guidance

Period

Caterpillar (NYSE: CAT  )

****

$9.07

$9.25

FY '12 EPS

Westport Innovations (Nasdaq: 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 (NYSE: 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.

Highly rated CAPS All-Star MKArch is skeptical China can escape so easily from a downdraft and thinks the only saving grace will be a resurgent U.S. economy.

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 (NYSE: 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 (Nasdaq: 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
These stocks may have raised expectations, but the smartphone revolution impacting both of them has even wider implications than before. The Motley Fool discovered three companies quietly cashing in on the smartphone and tablet PC boom. Read the free report "3 Hidden Winners of the iPhone, iPad, and Android Revolution," but hurry, because it's available only for a limited time.

Fool contributor Rich Duprey holds no position in any company mentioned. Click here to see his holdings and a short bio. Motley Fool newsletter services have recommended buying shares of Westport Innovations and Chesapeake Energy. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On February 22, 2012, at 4:03 PM, pl2358 wrote:

    Honestly, how can anyone be bearish on CAT?????

    The stock has had a great run. There's no question about that.

    Take a closer look at their numbers for January. They increased their sales numbers over last January, another barn-burner month, by high teens to high 20s in EVERY market area except machines....

    They will have no trouble making their revenue estimates for the next 1.5 years. Their order backlog is getting high enough that they are being forced to create manufacturing facilities, which they have been planning since 2008, to be able to produce the equipment they need.

    And, they are moving jobs back to the US. Great for our ecomony, and great for their company, because they won't be needing to repatriate money like KO and AAPL, because the money will be earned here.

    And, the stock is trading well below it's historical P/E. Not that anything is trading in correlation to historical P/E after the recent downturn, but honestly, if this long-running company that's well-mananged (and has learned to be ready for a need for new factories after not being ready for the last economic boom) gets even close to it's historical P/E of 18-19, this stock is a $160 stock based on pontificators' revenue estimates for 2011. Who wants a 50% gain this year? I'd like 4 or 5, please.....

    I'm not predicting a particular price, but the talk of CAT's China plans derailing the company's growth are a little bit overplayed. China isn't as big of a percentage of CAT's growth as bears want you to believe. Look at South America, moving along fine, and India, starting to ramp up their need for CAT's equipment. Add the purchase of Bucyrus, and I see a home run, everywhere I look....

    Disclosure: I am long CAT and won't likely be selling my stock until the company looks at becoming insolvent, which will be about the time the equator freezes over.

    By the way, a friend of mine is long CAT. Bought his stock at the end of the long strike in the 1990s. His cost....$17 per share in today's shares, and he's making a 7% yield on his cost. THAT's how good this company is over the long haul, through 2 economic downturns. And, he has never seen a loss on the shares, other than the first month or two he owned it. During the market downturn now and in 2001, the stock never got close to his purchase price. Well run, shareholder friendly, and ruthless about increasing their profits. That's what kind of company we all want to own!

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