We know that insider buying, stock buybacks, and raising guidance are considered bullish signs. But what about the opposite?

Insider selling isn't always a sign of rough waters ahead -- sellers might need the money for Junior's education or for reasons that have nothing to do with the business. And while stock dilution can be a bad thing, splitting a stock to make more shares available can be good.

Don't look down
What about lowering guidance? It could be a warning of poor performance for the foreseeable future, or it could be a small speed bump on the road to further profits. When a company forecasts lower profits, its stock usually takes a hit. Maybe it's time to get out, or maybe it's time to buy more!

To help tell the difference, we're going to look at a handful of companies that recently announced lower earnings guidance. Then we'll turn to the Motley Fool CAPS community to learn which of these stocks Foolish investors think have the power to turn lemons into lemonade.


Forecast Period

New Guidance

Analyst Forecast

Year-Ago Actual Earnings

CAPS Rating

Motorola (NYSE:MOT)

Q1 2007





Amerigroup (NYSE:AGP)

FY 2007





Scholastic (NASDAQ:SCHL)

FY 2007





Ethan Allen (NYSE:ETH)

Q3 2007






FY 2007





Source: Company SEC filings; Yahoo! Finance. CAPS Ratings courtesy of Motley Fool CAPS.

As you can see, CAPS investors don't think too highly of most of these companies. Maybe they knew something the market doesn't, as they were flying higher at the start of the year. The system currently asks more than 25,000 professional and novice investors alike to rank the thousands of stocks in our CAPS universe, overweighting the opinions of the most successful and accurate among them. From that data, CAPS rates each company from one to five stars, with five stars being the best.

Star of the lemonade stand?
There does seem to be one stock that has the power to make investors pucker up: Amerigroup. Nearly one-third of those rating the health-care insurance company as outperforming the S&P 500 are ranked as "all-stars" -- investors who score higher than 80% of all other players.

Listen to these pitches:

  • adibmoti, a top-ranked CAPS player, noted after the third quarter that while Amerigroup faced some expenses, it "should recover over a period of time. Still growing at 15% or so."

  • On the opposing side, business research and analyst firm Netscribe believes the company is losing market share and facing higher expenses. Amerigroup's "concentrated revenue stream accentuates its risks. Considering such a scenario, Amerigroup does not seem to be a very sound investment proposition. "

So, are the Bulls right? The Bears? Want to tell us what your opinion is on these companies? Then click here to join the Fool's groundbreaking achievement in collective investor intelligence. It's completely free to join.

Amerigroup is a recommendation of Motley Fool Stock Advisor.

Fool contributor Rich Duprey does not own any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.