In November,Market 's Next BigTurnaround Story. And if ever a
company had room to turn around, then it was thisSilicon Valley
Its stock peaked at $108 a share on the last day of 1999. Then
came the "Dot-com" bust. Within two years theshares had fallen to a
low of $8. Most of the ensuing decade has been spent playing
catch-up to a newwave of competitors.
The brand was -- and still is -- iconic. But in recent years,
shares have floundered. And since 2008 the company has chewed up
and spit out four CEOs.
Then, this past July, the company "got what it wanted," in the
words of Amy Calistri, chiefinvestment strategist for
Stock of the Month
Amid much fanfare,
Yahoo! (Nasdaq: YHOO)
named as itsCEO former
Google (Nasdaq: GOOG)
star Marissa Mayer, who at 37 became the youngest CEO of aFortune
Mayer was brought in to make Yahoo! relevant again. As The New
York Times noted this week, the new CEO "has emphasized ways to
modernize Yahoo!... to help them contend with ever-newer
As a result, investors are getting what they wanted.
With a total return of 32%, Yahoo's shares have beaten 98% of
the S&P 500 since Labor Day.
I tell you all this because Amy added 300 shares of the stock to
hercost basis to $15.75 per share.)
In her Augustissue , Amy declared that the right change in
leadership "can absolutely transform a troubled company." So far,
Amy has been right. Yahoo's shares finished Friday at $19.64. Amy
and her readers are up 23% on her original purchase.
But can it happen again? It already has.
In fact, the CEO card played a major role in Amy's most recent
portfolio addition, but with a twist...
In this case, the "new" CEO has been in place nearly five years,
after an eight-year hiatus. What Amy found was a company whose CEO
proved himself not once, but twice.
This founder and CEO left the top job in 2000, only to see store
traffic slide in the years after to record low levels. By the end
of 2007, the company's share price had fallen more than 50% from 20
What happened next?
In January 2008 the founder took back the helm. "It was a tough
year for almost every company as the globaleconomy plunged
intorecession ," noted Amy. "But it was even more challenging for
[this company]. Non-performing locations were closed. Expansion was
redirected overseas. Quality and customer experience were
But here's the best part: The share price rose almost eight-fold
in less than four years, from single digits in November 2008 to a
peak of $62 earlier this year.
And a recent easing from those highs has made for an attractive
buying opportunity, according to Amy.
For those readers who haven't already guessed, your most recent
portfolio addition is
Starbucks (Nasdaq: SBUX)
. What role did the leadership of CEO Howard Schultz play in your
Identifying a battle-tested leader was paramount in the search for
my December "Stock of the Month."
They say a rising tide lifts all boats. In a rising market and
rebounding economy, CEOs -- the boats' captains -- are less of a
factor. But when the market is fragile and global economic
headwinds are blowing, I want a leader who has successfully
navigated a company through difficult times. On that front, Howard
Schultz has a track record that is difficult to rival.
In 2007, the share price of Starbucks dropped more than 40%. The
company had become complacent with a model that prized expansion
above all else. Margins were falling andearnings growth was
When Schultz returned to the company in 2008, the global economy
was in a dire state. Most companies were struggling due to the
recession... and Starbucks wasn't fairing any better.
To get things back on the right track, Schultz started closing
non-performing locations, rerouting expansion overseas, and
reprioritized quality and customer experience. After four years
with Schultz back at in control, shares of Starbucks rose roughly
What other factors make Starbucks "Stock of the Month" worthy?
When I search for an idea, I look for the single best investment
opportunity at that time. One of my key tenets is finding a trend
that has been underestimated by the market.
Clearly Starbucks is known and appreciated by the market. This
can be seen by its relatively rich valuation. Its
forwardprice-to-earnings ratio (P/E ) is 20.3.
Yet I firmly believe that the marketwill still be surprised by
this company's ability to generate growth in a challenging
environment. Its management team, its diversebusiness model and
lower input costs make it a triple threat in the throes of aprofit
battle. And should economic conditions improve, this stock won't
miss any of the upside.
For example, revenues for Starbucks' packaged goods -- the
segment that distributes Starbucks brands to grocery stores -- grew
33% in the fiscal fourth quarter. Although this group only accounts
for roughly 12% of the company's revenues, Starbucks has plans to
double the segment's international presence by 2015 and believes
the group could overtake its retail store business in size and
The company is also about to acquire
, a 300-location specialty tea retailer. Teavana is primarily a
mall-based outlet. But after theacquisition , Starbucks will start
to open Teavana locations in high-profile neighborhoods, much like
the current Starbucks store model. Over time, Starbucks locations
willoffer some Teavana products.
And in October, Starbucks started selling its Verismo
single-serve coffee and espresso brewer. While you could always
pick up small ticket gifts at Starbucks, this is its first foray
into a big ticket item (in the range of $200 to $400, depending on
Starbucks also has some added margin protection. The price of
coffee beans has been in freefall, dropping roughly 40% since April
2011. That should act as a nice buffer over the next few
How can individual investors research management on their own? What
are the key things they should be looking for?
When looking for a high-functioning management team, there are
things to look for and things to avoid.
If I see a struggling company start to make overpriced
acquisitions -- as
did when it bought Autonomy last summer -- then that's a red flag.
To me it signals a panicky management team hoping to buy a quick
fix to a failing business model.
Complacency is also a red flag. Until Lou Gerstner came along,
was banking on its legacy hardware business -- long after computer
hardware started to be acommodity . Likewise, prior to Mayer's
arrival at Yahoo!, the company continued to focus on Web traffic --
once a meaningful metric -- long after its revenues started to
Somewhere between complacency and panic is the management
sweetspot , and that's what investors need to look for. Look for a
company with a measured and calculated sense of urgency -- a
company with an unambiguous and executable vision -- and you'll
find savvy leadership.
Yahoo! has had a great run this fall. Is it too late for new
Since Mayer's arrival, the stock has been on what Icall a "relief"
rally. It's really been a joy to watch the company lay out a
strategy that makes sense in the context of our current media and
advertising environment. But while I think the relief spurt is
over, I still think Yahoo! has the capacity to outperform the
market as its financial performance starts to validate its revamped
strategy. So I still think the stock has room to reward new
Amy's quest for winninginvestments doesn't end with CEO background
checks. A few months ago she uncovered a little-known investment
that pays a 9%dividend yield ... has doubled the performance of
S&P 500 since the beginning of the year... and owns shares in
some of the world's fastest-growing companies. The best part? The
government FORCES this company -- and several others like it -- to
pay shareholders 90% of its profits. To learn more about
Stock of the Month
, and this stock, click here to listen to Amy's latest
presentation. Or you can
follow this link
to read the text version.
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