Investors love the CEO merry-go-roundJune 11, 2013: 12:42 PM ET
The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, Abbott Laboratories and AbbVie, La Monica does not own positions in any individual stocks.
What do many of the best performing stocks of this year have in common? Some fresh blood in the executive suite. The faster the CEO merry-go-round turns, the better!
Five of the top 10 stocks in the S&P 500 as of Monday afternoon were of companies that had a new CEO join last year: Best Buy (BBY), Micron Technology (MU), First Solar (FSLR), Avon (AVP) and Boston Scientific (BSX).
What's more, three of the other top 10 gainers named new CEOs in 2011: Hewlett-Packard (HPQ), Advanced Micro Devices (AMD) and H&R Block (HRB). Electronic Arts (EA), the 10th best performer in the S&P 500 this year, ousted its CEO in March.
The exception to the rule? Netflix (NFLX). Reed Hastings has been CEO since 1998. That makes him the Gregg Popovich of CEOs. (Yes, this is my second reference to the coach of the San Antonio Spurs in the past two weeks.)
Several other high-profile companies canned their CEOs in 2012 and have been Wall Street studs in 2013.
Citigroup (C) has flourished after Michael Corbat replaced Vikram Pandit. The stock is up 30% so far. Online brokerage E-Trade (ETFC) also got rid of its CEO last year -- although it unfortunately kept the annoying talking baby in its commercials -- and its shares are up more than 30% this year as well.
And in perhaps the most famous new hire of all, Yahoo (YHOO) went from being a perennial tech turnaround to a cool Silicon Valley company again after the purple portal convinced ex-Google (GOOG) executive Marissa Mayer to take the helm. Shares of Yahoo are up nearly 35% in 2013.
It may be a coincidence that all these companies are doing so well this year. But I think that one reason they are all beating the market so soundly is because Wall Streeters can actually be a forgiving bunch. Investors like to see a new face and are willing to give companies the benefit of the doubt (for a little while at least) when boards shake up the executive suite.
In almost all of these examples, the new CEOs were brought in to take over at struggling companies. Micron doesn't fit that mold since it needed to hire a new CEO after former CEO Steve Appleton died in a plane crash in February 2012.
Of course, new CEOs don't enjoy a honeymoon period with shareholders indefinitely. Just ask Ron Johnson. The former Apple (AAPL) retail head was treated like a rock star when he first joined J.C. Penney (JCP).
Check out how well the stock did from the day his hiring was announced in June 2011 (he didn't officially start until November though) up until February 2012. That date is key because it's when the retailer unveiled a splashy new ad campaign tied to Johnson's strategy of ending promotional discounts and launching stores within a store. Goodbye stodgy old J.C. Penney and hello hip, new jcp.
Unfortunately for Johnson (as well as JCP investors) the strategy failed abysmally. Sales continued to fall as consumers were confused by the new format. And the retailer racked up big losses. Wall Street quickly turned on Johnson.
But how's this for an ironic twist. J.C. Penney's stock has soared since Johnson got the boot. And Johnson's replacement is the guy who J.C. Penney got rid of in 2011 to hire Johnson in the first place: Mike Ullman.
So could some of the companies that have made moves at the top this year be winning stocks in 2014? That remains to be seen.
Procter & Gamble (PG) has given back the gains it enjoyed after CEO Bob McDonald announced his retirement a few weeks ago. McDonald stepped down following pressure from hedge fund manager and big P&G shareholder Bill Ackman. Amusingly enough though, Ackman was a staunch supporter of Johnson at JCP up until the bitter end.
But daily deal site Groupon (GRPN) has popped since the company canned controversial founder and CEO Andrew Mason. Natural gas company Chesapeake Energy (CHK) has done well this year after CEO Aubrey McClendon stepped down. He was stripped of his chairman title last year after a scandal involving more than $1 billion of loans he took from Chesapeake by using stakes in the company's wells as collateral.
Still, one thing seems clear. Wall Street's love for new CEOs only applies when an underperforming executive is told to not let the door hit them on the way out. Just look at what's happening at yoga apparel maker lululemon (LULU) today.
Even though the company had a major product mishap a few months ago with its see-through pants, investors largely shrugged that off. Lululemon shares hit an all-time high Monday ahead of its earnings announcement.
But highly-regarded CEO Christine Day shocked investors by announcing that she was planning to leave the company. Shares plunged 17% on that news ... even though the company's sales and earnings were solid.