Just days ago, Chesapeake shares surged about 10% after the company announced that CEO, Aubrey McClendon would retire on April 1, 2013. Investors obviously welcomed this news as the stock was punished last year when it was disclosed that Mr. McClendon had financial interests that could create a conflict of interest with shareholders. A 10% jump in the stock value is quite a gain for a management change and that leads us to another company that seems to be potentially ripe for a new CEO that could also cause the stock to spike up.
Microsoft (MSFT) shares were once the darling of Wall Street, but for many years now the stock has offered lackluster performance. The company has a huge amount of revenues from the Windows operating system, and it has been successful with the Xbox. It also owns Skype which could add to future growth if the company can monetize this asset further. However, these products and services have not been enough to move the stock by much for many years, and there seems to be an increasing demand for Microsoft's CEO Steve Ballmer to be replaced.
A well-known hedge fund manager, David Einhorn of Greenlight Capital, has been suggesting that Mr. Ballmer should step down. A former top level employee of Microsoft, Joachim Kempin also recently shared similar sentiments. Mr. Kempin has written a book which details his beliefs that Microsoft saw opportunities in tablets, social networking, and tablets but failed to adequately capitalize on them. A CNBC article states:
"For Microsoft to really get back in the game seriously, you need a big change in management," said Joachim Kempin, who worked at Microsoft between 1983 and 2002, overseeing the sales of Windows software to computer makers for part of that time. "As much as I respect Steve Ballmer, he may be part of that in the end."
As Chesapeake shareholders have recently seen, a change in leadership can boost the share price in a major way in the short term and possibly even much more in the long term. Another great example of this would be Starbucks (SBUX) which has seen its share price more than double since Howard Schultz came back to the company as the CEO. Some investors and analysts have started to speculate as to whether Bill Gates will return to Microsoft as CEO, although he has not yet confirmed those rumors. Whether or not he does, it does seem that many Microsoft investors would welcome a change in the CEO position and that could lead to gains in the share price.
Putting aside the potential for a CEO change, Microsoft shares offer plenty of value now. The stock trades for just about 10 times earnings and it offers a solid dividend yield of 3.3%. Plus, it has a rock-solid balance sheet with about $68 billion in cash and just around $14.2 billion in debt. Some investors have been avoiding Microsoft shares because of concerns over weak PC sales growth, however, I think those fears are overblown and while tablets can cause a near-term adjustment to PC sales, these devices do not replace the laptop or desktop functions for many users. In a market full of overpriced stocks, Microsoft shares appear to offer value, a solid income stream, and the bonus potential for bigger gains if there is a management change in the future.
Here are some key points for MSFT:
Current share price: $27.93
The 52 week range is $26.26 to $32.95
Earnings estimates for 2013: $2.85 per share
Earnings estimates for 2014: $3.16 per share
Annual dividend: 92 cents per share which yields 3.3%
Data is sourced from Yahoo Finance. No guarantees or representations
are made. Hawkinvest is not a registered investment advisor and does
not provide specific investment advice. The information is for
informational purposes only. You should always consult a financial
Disclosure: I am long MSFT.