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.

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.

An injection of growth
Having purchased Schering Plough, Merck helped defer the risks of the looming patent cliff that threatens so many other pharmaceuticals, like Pfizer (NYSE: PFE), where it just last quarter lost patent protection on the world's best-selling drug, Lipitor. Generics already account for more than three-quarters of all prescriptions written today, and by 2015, blockbuster drugs with annual sales of $170 billion will go off patent.

Merck is facing the loss of its $5 billion wonder drug Singulair this August, but over the next two years, it plans to seek approval for eight more medications on top of the five approvals it received last year, including drugs for chronic insomnia, hardening of the arteries, and an improved version of its cervical-cancer vaccine, Gardasil. It even plans to replace Singulair with two more therapies.

But with almost 60% of its revenues coming from outside the U.S., it blamed currency fluctuations for the weak guidance it offered up, which should impact earnings by 1% to 2%. It also suggests it's a transitory situation, and while Europe's finances are a disaster, Merck's business looks like it's on much more solid ground.

While it offers a nice dividend, Fool analyst David Meier thinks the threat of generics that hangs over Merck and its peers like a Sword of Damocles will keep it from leaping too far forward over the next few years. Yet Wall Street seems to disagree, as all 29 analysts following the pharmaceutical believe it will outperform the broad market indexes.

Add the Merck to your watchlist, then tell me in the comments section below or on the Merck CAPS page which camp you fall into.

A big disconnect
It's a different situation for Chinese pork processor Zhongpin, which, despite having a market that exhibits almost insatiable demand for its product -- China is both the largest producer and consumer of pork worldwide -- is only expecting to see "somewhat higher" revenues in 2012 and lower profit margins. Yet it's predicating these results on China's "good outlook" for its economy, although analysts are already saying the country is hitting a hard landing.

In the past, I've arched an eyebrow over its claim that it was able to be so much more profitable than its peers because it used an "industrial cluster approach" to its farm practices, and others have suggested it overstates the number of hogs it buys, as well as its distribution channel. Some Fools have wondered whether, on a more practical level, its interests just aren't aligned with shareholders'.

Despite enjoying higher hog prices than U.S. counterparts like Tyson Foods (NYSE: TSN) or Seaboard (AMEX: SEB), Zhongpin says it anticipates prices falling anywhere from 15% to 20% this year. In such a situation, investors can expect Zhongpin won't be going to hog heaven anytime soon.

Let us know what you think on the Zhongpin CAPS page, and add its stock to the Fool's free portfolio tracker to see if pigs can fly.

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.