Bring on the Pain!

Lowering guidance can bring on a world of pain for a company. Not only does the stock take a hit when the news is announced, but it can also continue to fall for quite a while afterward. Investors face a dilemma: Is it time to join the mad dash for the exits, or is it 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 burning down. With Motley Fool CAPS, however, understanding the difference is 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 the market and those they think will not. Pairing that information with companies that have lowered their guidance recently should help us decide which of the stocks are hotter than hot and which ones are not. A high CAPS rating 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:

Source: Briefing.com; Motley Fool CAPS.

Now, this isn't a list of stocks to buy or sell short. Things rarely work all the time in investing, so consider this is a list for further research.

Feeling ill
The dog days of summer are coming a little early for health-care insurer UnitedHealth, which reported it was expecting to lose 800,000 members this year as it tries to preserve margins. Yet to do so, it was laying off 4,000 people. It didn't help that it also announced it was settling the options backdating scandal at a cost of $895 million, or that this week Congress passed a Medicare bill that's likely to result in significantly lower payments. UnitedHealth, Humana (NYSE:HUM), and Aetna (NYSE:AET) are all likely to feel the effects of the work done in Washington.

Investors remain bullish on the insurer, particularly at this low point, figuring that all of the bad news is factored into the stock price. CAPS player JereBear1 noted at the end of last month that, while a lot of the internal and external factors buffeting UnitedHealth were suboptimal, the stock was becoming too cheap to pass up. While the price has dropped some more since, undoubtedly the sentiment remains:

I don't like this stock because of all the political and industry headwinds. I don't like the problems that UNH has been dealing with internally. I don't like the margins getting squeezed with escalating medical costs and increased competition. However, this stock has dropped from a recent high of $59.46 on 12/24/2007 to about $26 today. With a P/E ratio of 7.34 and a PEG ratio of .56 and consensus EPS of $3.52 for 08, I can no longer hate this stock. Company is stable overall and decisively undervalued.

Not hanging up yet
Interactive Intelligence, which provides software for call centers, is finding that the higher up-front cost of its product -- even if it ultimately saves its customers money down the road -- is a tough sell in this economic climate. Although sales have been strong thus far, weaker follow-on orders caused second-quarter results to miss analyst expectations. Shares have lost about three-quarters of their value since December.

Like the analysts who recommend Interactive Intelligence for the long-term part of a client's portfolio, investors like rjhubs are looking further out on the horizon:

This is a well run company with solid fundamentals and a good product. Revenue has been steadily increasing these past few quarters, [it's] only a matter of time before [earnings] go up as well. My only worry about this stock is I feel the marketing team is weak and could use improvement. ... Besides that, they are still hiring and planning to grow.

Guide on!
Looking at stocks whose shares have taken a dive on diminished outlooks can be a painful experience. Your input, though, can help guide other investors to higher prospects for growth, even in the face of lower guidance. Head to Motley Fool CAPS and let your voice lead the way.