Stocks That Just Lowered the Boom

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:

Stock

CAPS Rating (out of 5)

Previous or Consensus Estimate

Current Guidance

Period

A123 Systems (Nasdaq: AONE  ) ** $53.7 million $40.4 million Q4 11
Spreadtrum Communications (Nasdaq: SPRD  ) * $172 million $158 million to $163 million Q1 12

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.

A dead battery
There's no secret I'm not a fan of all these so-called "green energy" companies that have gotten taxpayer handouts. I thought General Motor's (NYSE: GM  ) declaration that it would build thousands upon thousands of Volts and Sparks ludicrous, because there's no proven demand for these vehicles, despite heavy subsidization on the manufacturing and purchasing side. And I previously warned about the potential for EV battery maker Ener1 to go bankrupt (which it eventually did).

With so many companies receiving subsidies but still ultimately going bankrupt, consider me skeptical about the last value of A123 Systems, another "green" company getting taxpayer green. It's on the ropes after high-end EV maker Fisker got cut off from government subsidies because it can't sell its cars. A123 not only provides batteries for its ultra-sleek Karma, but it's also an investor in the carmaker and it just wrote off half that investment. It also declined to participate in a new round of financing for Fisker.

A123's turnaround strategy is to make no one customer account for more than 15% of its revenues, while also looking to use its technology to a greater extent in grid power systems. It also announced a deal with Tata Motors (NYSE: TTM  ) to provide batteries for its buses. It's those pursuits that has CAPS member Teacherman1 hopeful it will avoid the outcome of Ener1 and other green company blowups.

While there is still some upside potential in the EV market over time, I am more interested in what they are doing with buses and power grids.

Add the EV battery maker to your Watchlist, then tell me in the comments section below or on the RF Micro Devices CAPS page why I shouldn't think it's another doomed company.

A big disconnect
Confirming once again that it's not so much where you've been but where you're going, cellphone-chip designer Spreadtrum Communications turned in a strong quarter of rising revenues and profits, but saw its stock sink after guiding to lower than expected revenues.

While China has been heralded as the big market to be in for mobile communications, demand is turning out to be surprisingly weak. Marvell Technology (Nasdaq: MRVL  ) recently said it's expecting sales to drop in its mobile and chip business because of the weakness. Now Spreadtrum is saying essentially the same thing: Sales of its chips to one of China's Big Three telecoms, China Mobile, will come in less than anticipated because of slack demand.

There is a certain seasonal component to the easing sales, but it's going beyond just that, which is why the markets sold off the stock.

Although 82% of the CAPS members rating Spreadtrum think it can still beat the market averages, the low two-star rating they've assigned it suggests they believe there are better places for your money. What about you? Does the critique of management's style that shortsellers pounded it with recently hold water for you? Let us know on the Spreadtrum Communications CAPS page and add its stock to the Fool's free portfolio tracker to see if it can dial up growth again.

Looking for winners
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.

Fool contributor Rich Duprey holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of China Mobile and Marvell Technology Group. Motley Fool newsletter services have recommended buying shares of China Mobile and General Motors. 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.


Read/Post Comments (1) | Recommend This Article (2)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 02, 2012, at 9:25 PM, fjfjfjjfjjfj wrote:

    There are several mistakes you made in your article about mrvl and sprd.

    1. MRVL did not say their chips business is slowing. Instead they expected the chips sales to be flat next qtr.

    2. sprd said the drop in next qtr was due mainly to drop in order from China Mobile "BECAUSE OF NEW MANAGMENT" and did not expect to have the same impact for the rest of the year.

    China Mobile still add new customers by a astonishing amount every year. How can the market be slowing down.

    SPRD is cutting into MRVL business.

    http://www.cn-c114.net/578/a553059.html

    SPRD is in transition from 2/2.5G chips to 3G/4G chips. I think you are wrong on both end and should restate your article by another piece.

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