With just two weeks left in the NFL season, it’s time for analysts and fans to start wildly speculating about which football head coaches are going to lose their jobs.
We do the same thing in the business world.
As the year ends, it’s only natural for investors and analysts to begin pondering about which CEOs will get shown the door in 2015.
And we don’t do this just for kicks. After all, a management team reshuffling is the sort of “special situation” that can turbocharge a company’s share price.
With that in mind, today I’m highlighting five high-tech CEOs who will be under enormous pressure in 2015 – making these stocks to watch…
Watching for the Pink Slip
We’re going through this exercise today because the quality of a company’s leadership has a major impact on the value of your investment.
Indeed, it’s at the heart of Rule No. 1 of my five-part Tech Wealth Secrets system, which says “great companies have great operations.”
And those great operations almost always come in the form of excellent leadership.
The New England Patriots wouldn’t be the best team in the NFL without Bill Belichick at the helm – and Microsoft Corp. (Nasdaq: MSFT) might be floundering without Satya Nadella.
It’s our job now to find the Joe Philbins and Rex Ryans of the tech world.
Consider the case of Mike Jeffries, who abruptly left the CEO spot of Abercrombie & Fitch Co. (NYSE: ANF) last week. Lately, under Jeffries, the iconic casual wear retailer was ringing up poor sales – and the stock was off nearly 18% year-to-date.
But, like I said before, a switch at the top can create a special situation for investors. And the day Jeffries left, A&F’s stock surged 8% on heavy volume.
In other words, the departure of an embattled CEO can be a major share-price catalyst.
So, let’s take a look at five high-tech leaders who are clearly on the hot seat.
Embattled Tech CEO No. 1: Dick Costolo, Twitter Inc.
You know an executive is under duress when he becomes the subject of an unflattering portrait in a major financial publication.
So it goes for Dick Costolo. Back in July, Forbes magazine ran a hard-hitting story about Costolo’s performance at Twitter Inc. (NYSE: TWTR) – and gave him six months to succeed or be shown the door.
The article noted Costolo had recently shuffled senior management, to shake things up. But if anything, things have actually gotten worse since then.
Though Twitter is a must-have app for millions, analysts were disappointed with third-quarter user growth. Wall Street thought Twitter would add 16 million to 18 million new monthly active users. But the number came in at 13 million, 38% below the high-end estimate.
For Costolo, the timing was bad. Just a few weeks later, Twitter celebrated its first year as a publicly traded company. While so far this year the Standard & Poor’s 500 Index has gained 9%, Twitter stock is down 43%.
Embattled Tech CEO No. 2: J.K. Shin, Samsung Electronics Co. Ltd.
Costolo was far from the only high-tech CEO to get battered in the press in 2014.
In late November, a lead article in the Wall Street Journal suggested J.K. Shin was on the verge of losing his job as co-chief executive and head of the mobile division at Samsung Electronics Co. Ltd. (OTC: SSLNF).
The story broke days before Samsung’s annual round of management changes.
While Shin kept his job, he remains under intense scrutiny, because Samsung’s net profits for the third period fell 49% on weakening smartphone margins.
Those margins have fallen for several quarters and now stand at 7%, less than half the 15% in 2009. And the thinly traded stock is off 20% this year.
Though Shin got a reprieve, his top lieutenant wasn’t so lucky. D.J. Lee lost his role as president and head of the mobile unit’s sales and marketing.
Embattled Tech CEO No. 3: Virginia Rometty, IBM Corp.
You certainly can’t say Virginia Rometty isn’t throwing herself into the job of turning around IBM Corp. (NYSE: IBM).
Earlier this year, she sold off IBM’s low-end server line to Lenovo Group Ltd. (OTC: LNVGY). She followed that up by forming a strategic alliance with Apple Inc. (Nasdaq: AAPL) to develop new apps for the corporate market.
But after more than four years in the top slot, Rometty has yet to deliver where it matters most – sales, profit growth and stock returns. IBM is down 14% this year.
The third quarter became the 10th consecutive one of flat or declining sales. And profits for the period came in at just $18 million, compared with $4.04 billion in the year-ago quarter.
Either way, the year ahead is pivotal for Rometty. It will mark her fifth as CEO. That anniversary will be a natural time for investors and IBM’s board to ask if Rometty really is the right person for the top job.
Embattled Tech CEO No. 4: J. Paul Raines, GameStop Corp.
J. Paul Raines, CEO of GameStop Corp. (NYSE: GME), finds himself challenged on two fronts, professional and personal
Last spring, he announced plans to shift emphasis from the company’s 6,500 physical stores to online sales. He calls the strategic plan GameStop 3.0.
Raines wants to focus more on the rise of online and mobile games. The market researchers at Gartner expect the sales of mobile games (such as Angry Birds and Candy Crush Saga) to increase by 30% this year, nearly triple the 11% growth for console games (such as those for PlayStation and Xbox).
Things may get worse. According to Gartner, gaming is about to be further upended by tablets, which are Web-ready, mobile and big enough for gaming.
Meantime, Raines also has to contend with health issues. He recently had surgery to remove a small tumor from his brain. He says he’s feeling healthy again, and the board issued a statement of confidence in Raines.
But Wall Street remains less sanguine. The stock is off more than 30% for 2014.
Embattled Tech CEO No. 5: Mary Barra, General Motors Co.
Strictly speaking, General Motors Co. (NYSE: GM) is not a “high tech” concern. But technology in the “connected car” and in the factory are a huge part of its operations.
Mary Barra made history in January when she became the U.S. auto industry’s first female CEO. So, I doubt the board will fire her this year.
But she is likely to remain under intense scrutiny following news that GM knew of safety problems with some of its models and delayed recalling them for years.
At least 13 deaths and 54 accidents have been related to the defective cars. And Congress has grilled Barra over the problems.
In November, pressure from a plaintiff’s group forced Barra to skip an awards ceremony in Washington, D.C., where she was to be honored for her accomplishments as a female executive.
From looking at GM, you wouldn’t know the United States is in the midst of an auto boom. So far this year, GM stock is down 21%.
All five of these embattled CEOs are in charge of companies that have seen 2014’s profits pass them by.
And when you think about Rule No. 1, that’s not surprising. When the Street and investors lose confidence in a firm’s senior leader, the stock comes under pressure.
In other words, if you really want to make money in high tech, you’ve got to look for companies run by visionary leaders.
Black Monday – the day NFL teams tend to fire underperforming head coaches after the regular season – comes on Dec. 29 this year. For these five tech leaders, their day of reckoning could come at any time in the next 12 months.
We’ll be watching.