Bring On the Pain!

Lowering guidance can bring on a world of pain for a company. In addition to taking an initial hit when the news first breaks, shares can continue to fall for quite a while afterwards. Should investors join the mad dash for the exits, or is the tumble a buying opportunity in disguise?

A guide to the future
It's not always easy to tell whether your company is having a fire sale or just burning down. But Motley Fool CAPS can help make understanding the difference a whole lot simpler.

The investor-intelligence database compiles the opinions of more than 110,000 professional and novice investors about stocks they think will outperform or underperform the market. Research shows that four- and five-star rated stocks offer you a better chance of beating the market than lower-rated ones. A high CAPS rating, combined with lowered guidance, could present you with a real deal.

Here are five companies that have recently guided lower, coupled with what CAPS investors think of them:

Company

Period

Analyst Est./Previous Guidance

Updated Guidance

CAPS Rating (5 max)

Abercrombie & Fitch (NYSE: ANF  )

FY09

$5.36

$4.95-$5.00

**

Briggs & Stratton (NYSE: BGG  )

FY09

$1.08

$0.85-$0.93

**

J.C. Penney (NYSE: JCP  )

Q3 2008

$0.76

$0.70-$0.75

**

Kohl's (NYSE: KSS  )

Q3 2008

$0.57

$0.51-$0.56

**

Lowe's (NYSE: LOW  )

Q3 2008

$0.33

$0.27-$0.31

***

Source: Briefing.com; Motley Fool CAPS.

Now, this isn't a list of stocks to buy or sell short. There are few if any "sure things" in investing, so consider this a list for further research.

Out of stock
It's not surprising to see a bevy of retailers filling out the list of companies scaling back their predictions for earnings. Although higher fuel costs no longer burden consumers quite so heavily, that relief is not likely to turn the retail tide just yet.

Teen retailer Aeropostale (NYSE: ARO) -- which just reported higher revenues and earnings at the upper end of its updated guidance -- has found success by offering fashions similar to rivals like Abercrombie & Fitch, but at a lower price. So even though easing oil prices might give all retailers some margin improvements down the road, the lower-cost leaders should continue to shine.

CAPS All-Star member huddaman figures that's all essentially baked into Abercrombie's price, and argues that current valuations provide an attractive entry point to the Abercrombie brand:

They will probably have a horrible holiday season, horrible back to school and horrible couple of years. But when else would you get a chance to buy this great american brand for under 10 times earnings? I once made the horrible mistake of selling this for a small 10% gain at around $25. I repented for years. Sales and earnings now, dont look anything like they were at $25. They were much lower back then... Get this one before the economy recovers. It will recover.

Department stores haven't fared any better, as Kohl's and Penney's have proven. Yet the former certainly seems on the mend; its latest quarterly results were less bad than previous numbers. Still, with consumers seeking the biggest bang for their shopping buck as back-to-school season wraps up, expect Wal-Mart (NYSE: WMT  ) to continue its lead.

If you're looking for a long-term investment, though, CAPS member thinkahead said in late June that the well-run Kohl's will be a winner:

Kohls stock has taken a beating in the past year or so; almost down 50%. Kohls is a well managed company. Perhaps has overextended itself by building too many new stores in the past couple of years. Great merchandise, though, at very reasonable prices. Customers seem to love Kohls. Kohls has built a strong credit card base which might hurt them in the long run in times of high credit card [delinquencies]. I have mixed feelings about this company, but think in the end, think that the stock will increase in value.

Guide on!
Looking at stocks whose shares have taken a dive on diminished outlooks can be a painful experience. It pays to start your own research on these stocks on Motley Fool CAPS. Read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made, all from a stock's CAPS page. Your input can help guide other investors to higher prospects for growth, even in the face of lower guidance. Head to CAPS now, and let your voice lead the way.

Briggs & Stratton is a Motley Fool Hidden Gems Pay Dirt pick. Wal-Mart is a Motley Fool Inside Value recommendation. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Rich Duprey owns shares of Wal-Mart, but he does not have a financial position in any of the other stocks mentioned in this article. You can see his holdings. The Motley Fool has a disclosure policy.


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

Comments from our Foolish Readers

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 August 22, 2008, at 2:42 PM, madmilker wrote:

    for the biggest bang for the buck....

    buy American made.....

    which purdy well leaves Walmart* out.

    Quit thinking cheap items and start thinking jobs for America.

  • Report this Comment On August 28, 2008, at 8:19 PM, multi007 wrote:

    madmilker - your old school thoughts of buy only american is what put some american companies in such financial difficulties as it is. overseas labor cant be beat. american companies NEED to take advantage of this of they will go bankrupt - and we will watch our shares go the way of bear sterns. sorry, i understand your point. being a patriot is one thing, but loosing money while being a patriot just makes one a martyr.

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