When CEOs go, stocks move
I like to look at big picture trends whenever possible, as even if they aren’t particularly the most useful factor for making purchases, these trends are, if nothing else, really intriguing.
Such is the case with a theory being advanced by Paul R. La Monica of CNN’s The Buzz, who has theorized that one thing investors really love is a new CEO in a corporation.
As La Monica points out, half of the top ten stocks in the S&P 500 have been companies that have also had a new CEO within the last year. These include Best Buy (BBY), Micron Technology (MU), First Solar (FSLR), Avon (AVP), and Boston Scientific (BSX). Furthermore, there have been three other top ten performers whose CEOs are also fairly new, if not quite as new as the other five. Hewlett-Packard (HPQ), Advanced Micro Devices (AMD), and H&R Block (HRB) got new CEOs in 2011. Another high performer, video game standout Electronic Arts (EA), got rid of its own CEO in March.
There are exceptions, La Monica concedes, such as Netflix (NFLX), which has had the same CEO (Reed Hastings) for 15 years now. Of course, there will always be exceptions, and looking at all of the examples that justify La Monica’s theory really makes a much stronger point.
Why is this the case, though? It could be just because change often breeds optimism, and optimism moves stocks. Nothing is worse than a company that gives the impression of stagnancy, and nothing makes a stock jump more than the idea of innovation and change. One thing that CEOs bring is new ideas, after all.
Of course, these new ideas can backfire. Look at Ron Johnson’s run in JC Penney (JCP), for instance, where he alienated existing customers and failed to attract enough new ones with decisions such as separating stores into “stores within a store” and “ending promotional discounts”.
Still, there is a lot of evidence that suggests that there’s no better time to jump on board than when new leadership comes into a company. Even JC Penney’s stock soared for awhile after Johnson came aboard, after all.
