Just over two months ago I unceremoniously kicked McDonald's Corp. (NYSE: MCD) stock off my "Buy" list, noting that for the first time in more than 10 years, the company was no longer tapped into any of our globally "unstoppable trends." Now, with the stock down another 7% since then, the Board has just kicked CEO Don Thompson off the menu, too.
Is this move enough to put Mickey D's back on my list?
That's a great question. It's not for nothing that the stock is practically investment royalty. It's established, it's widely held, and it returned $6.4 billion to shareholders last year.
It's also a logical question because a change in senior management can be a powerful catalyst for higher returns. ABB Ltd. (NYSE: ABB), for example, took off on a 1.359% run in the five years after Jurgen Dormann took over for former CEO Joergen Centerman. Similarly, Yahoo! Inc. (Nasdaq: YHOO) has returned more than 190% since former Google Inc. (Nasdaq: GOOG, GOOGL) exec Marissa Mayer took the reins and launched a series of bold acquisitions in the summer of 2012.
McDonald's stock jumped 5% the day Thompson hit the pavement after a 25-year career and less than two years as CEO, so investors are naturally giving the stock a second look. They're all wondering – "Is this the day McDonald's turns things around?"
My answer may surprise you.
While many investors like to think CEOs have long tenure, in fact they come and go on a regular basis. In 2014 alone, 1,341 CEOs left their companies, a figure up 7% from 2013's total, according to a report by The Street.
That's because not everything a CEO does is good. Many times new CEOs can destroy a company literally and figuratively.
RadioShack Corp. (OTCMKTS: RSHC), for example, has fallen more than 91% since it named Joseph Magnacca to the corner office. CEO Ron Johnson was fired from JC Penney Co. Inc. (NYSE: JCP) after just 17 months on the job following a disastrous reinvention of the company's brand. The stock was down by 25% in Johnson's first year at the helm.
McDonald's risks the same fate.
About the Author
Keith Fitz-Gerald has been the Chief Investment Strategist for the Money Morning team since 2007. He's a seasoned market analyst with decades of experience, and a highly accurate track record. Keith regularly travels the world in search of investment opportunities others don't yet see or understand. In addition to heading The Money Map Report, Keith runs High Velocity Profits, which aims to get in, target gains, and get out clean, and he's also the founding editor of Straight Line Profits, a service devoted to revealing the "dark side" of Wall Street... In his weekly Total Wealth, Keith has broken down his 30-plus years of success into three parts: Trends, Risk Assessment, and Tactics – meaning the exact techniques for making money. Sign up is free at totalwealthresearch.com.