These 2 Stocks Just Shot Out the Lights

Offering earnings guidance above analyst expectations is obviously a bullish sign, since over time earnings growth follows sales growth. And when a company predicts greater sales or profits, we expect its stock price to soon follow.

Sometimes things don't work out as planned, though, so we'll pair up the brighter 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 then investors should take notice, too.

Stock

CAPS Rating (out of 5)

Prior or Consensus Estimate

Current Guidance

Period

Michael Kors (NYSE: KORS  ) ** $0.27 $0.33-$0.35 Q213 EPS
Smith & Wesson (Nasdaq: SWHC  ) *** $0.13 $0.19-$0.21 Q213 EPS

Don't blindly buy into their heady outlook -- you still need to do some research. Use the announcement as a jumping off point for additional research.

High aspirations
Mae West was once reported as saying: "I've been rich and I've been poor. Believe me, rich is better." Fashion icon and analyst favorite Michael Kors has been enjoying a surfeit of riches lately, rising from its IPO price of $20 a share to $53 today as triple-digit earnings growth over the past six months bolstered the impression it is today's Coach replacement.

Both appeal to consumers seeking affordable luxury handbags and accessories. Whereas Coach has long dominated the market as the go-to aspirational retailing ruler, Kors is now seen as the upstart that will unseat the queen from her throne. I think it's too soon to say Coach will be deposed -- it has a global footprint and has already firmly established itself in China, a market Kors hasn't even yet tapped -- but these are heady days, and Kors is tapping the secondary markets already in a bid to finance its expansion plans. Yet warnings from British luxury icon Burberry suggests Kors' meteoric rise could face strong headwinds as full-year profits will only hit the low end of analyst guidance and same-store sales are flat. It's a broad-based slowdown across all regions, which might be the one bright spot for Kors since it derives 90% of its sales from North America. Vera Bradley (NYSE: VRA  ) might be similarly insulated, as all of its sales are domestically produced, but nearly a third of Coach's sales come from international markets, while 38% of Ralph Lauren's sales came from outside the United States.

With a tie-in to the popular Project Runway TV show, CAPS member JohnStuartMill believes the affordable luxury retailer will continue to crush earnings. Let me know in the comments section below if you agree Michael Kors still makes an affordable addition to your portfolio.

Shooting out the lights
"It's the economy, stupid," intoned one recent president, and gunmakers Smith & Wesson Holding and Sturm, Ruger (NYSE: RGR  ) are realizing there's a silver lining -- if not a silver bullet -- to the cloud hanging over the economy.

Gun sales are shooting out the lights as Smith & Wesson reported sales almost 50% higher than a year ago, while Ruger sold its millionth gun this year in mid-August, a feat it took all of 2011 to accomplish. Although some may attribute the rise in gun sales to fears of a President Obama reelection, believing he may be more willing to enact stricter gun-control laws when he no longer has to answer to pollsters, it's likely the souring economy and fear of growing crime that drive sales.

FBI background checks for firearms purchases have soared 70% since 2007 and are up 12% so far this year from the prior period. While the law enforcement agency says there's no definite correlation between background checks and gun sales -- just as Smith & Wesson's backlog doesn't easily translate into sales -- one can still make the assumption that if more people are looking to buy guns, there will be more sales. Even TASER (Nasdaq: TASR  ) is seeing surging sales, with revenues jumping 33%, though most of its sales are to law enforcement and the military.

Smith & Wesson expects sales to continue going guns a-blazin', with third-quarter revenues anticipated to come in 40% higher than last year, which the CAPS community attributes to presidential politics rather than economic concerns. Whatever the reason, at just 12 times earnings, the gunslinger doesn't appear very expensive, a point emphasized by its enterprise value -- it's trading at just 10 times free cash flow.

I'm rating Smith & Wesson to outperform the broad market indexes on CAPS, but let me know in the comments box below if you think it's on target to beat expectations again.

Raise your sights
Guns and ammo have proved to be lucrative paths to profit, but The Motley Fool has found three retailers themselves that could pay off handsomely for investors. In a free report available for immediate download, Foolish analysts give you the rundown on top retail stocks dominating the market. You can scope out the report "3 Companies Ready to Rule Retail" immediately.

Fool contributor Rich Duprey holds no position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of Coach. Motley Fool newsletter services have recommended buying shares of Coach. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.


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