Dictionary.com defines patience as an ability or willingness to suppress restlessness annoyance when confronted with delay. It's a term or action that our society hardly understands; because we are spoiled in a fast-paced world with technology that allows us to find, receive, and utilize information instantaneously. As investors our lack of patience is the single largest contributor to missed opportunities; because we simply refuse to wait.
Throughout 2011 there were several new hires, many of which were high-profile, and now some of the larger companies in the market are under new leadership. Some of these changes have been celebrated and others have not; but one common trend is that investors are expecting immediate results. The following article will tackle this issue and look at two new executives that I believe will be particularly successful. However, success will take time, and if you are patient the rewards could prove to be more than worth the wait.
I consider the late Steve Jobs to be one of the top five CEO's of all time. In my opinion, Steve Jobs and Bill Gates are the two most innovating and influential people in the history of technology. Steve Jobs has been the catalyst behind a stock that's returned a 1,500% gain since his permanent position as the CEO of Apple (AAPL) began in January of 2000. And if you count the stock's performance since his term began as the interim CEO then Jobs has been responsible for a gain of more than 11,000%; which means that a $10,000 initial investment would be worth more than $1.2 million if shares of AAPL were bought the day that Jobs began as the interim CEO in 1997. Therefore, it's safe to say that Jobs leaves behind a deep appreciation among both investors and consumers all around the globe.
It's always good to remember the great accomplishments of those who change our lives through innovation, entertainment, leadership, or in whatever way the person changed our lives. Steve Jobs is no different, we want to remember his legacy as a man who brought us many of the greatest devices in the history of technology and changed the way we listen and experience music by being able to know what we wanted before we wanted it. Jobs, who was the CEO and co-founder of Apple, will forever be immortalized in our minds much like we remember Michael Jordan for his game winning shots. However, it wasn't always sunny for Apple, and Steve Jobs had to overcome adversity to transform a struggling company into the largest and most powerful technology company within the market.
Steve Jobs was the co-founder of Apple but was forced out of the company in the early 1980's. Jobs then returned to the company in 1997 after Apple purchased Jobs' company NeXT early in the year. Jobs served a brief term as the interim CEO but later took the permanent CEO position in January of 2000. Over the next four years the companies stock would lose 60% of its value as a result of a shift in strategic focus; a large number of acquisitions to aid in growth; and the dot-com bubble burst which created skepticism among several technology companies. The point is we can now sit back and reflect on the life of Steve Jobs and honor his accomplishments but there were still problems and Jobs faced multiple issues during the first few years of his tenure at Apple between 2000 and 2003.
The success and hardships of Steve Jobs should be used as a learning experience for investors and should serve as a realization that failures often come before success. I am discussing this situation because there are several new high-profile CEO's that are beginning there tenure with struggling companies; and several of these new CEO's are already facing scrutiny. I am talking about two CEO's in particular, that I believe have the potential to be great leaders and create an identity at their new companies and return very high profits to investors for many years to come: Meg Whitman of Hewlett-Packard (HPQ) and Ron Johnson of JCPenny (JCP).
On September 22, 2011 Meg Whitman began her new job of creating an identity at Hewlett-Packard and returning to the days of past glory. The initial reaction of Whitman's hire wasn't welcomed as HPQ fell nearly 5%; however the stock has since recovered to post a gain of 12% since the announcement but remains very cheap. The company has a lot of issues and a lack of direction therefore Whitman's success will be defined by her ability to create a "brand" and she will have to be aggressive to develop and successfully execute one or more of the previously unsuccessful segments of its business.
Before Whitman accepted the position as the new CEO of Hewlett-Packard she was the previous CEO of eBay (EBAY). Her tenure began in 1998 when the company had just 30 employees and $4.7 million of annual revenue. But after 10 years the company had over 15,000 employees and $7.7 billion in revenue. Whitman's term as the CEO of eBay was both celebrated and criticized: She had tremendous success during the first six years but then encountered several issues during the remaining four years.
Whitman's largest contribution to the growth of eBay is probably Paypal which is still a vital component to the companies success. At the time it was a gamble but proved to be a good decision and a service that both the vendor and buyer would utilize. What I like about Whitman is that she will take chances in order to grow a company. However, they are educated and well calculated chances that are necessary in order to grow. In my opinion, HPQ needs an aggressive style and someone who is willing to look beyond politics and identify what has worked and what's failed in the past and then improve a service or product so that it may be successful. HPQ has 1000's of patents and $10 billion in free cash flow therefore the options for this company are plentiful.
In just three months Whitman is already creating a better culture and is making difficult decisions on how to grow the company. In December, the company announced that it was going to open its webOS mobile software as an open source. This service had been considered a burden after a failed attempt to compete with Google's (GOOG) Android operating system and most believed the company would abandon the division or potentially sale the segment. Yet after Whitman's review, along with its reorganized board and service team, it was decided that there is still value in the service and that it will be pursued as a catalyst for future growth. This is the first of several gambles that I expect Whitman to make and I believe this service has the potential to be highly successful, and what's even more encouraging is that HPQ has so many running projects that it won't cost a great deal of additional income to create significant revenue if it can successfully market and execute the new services. I think it will take Whitman a couple years, much like Jobs, but she will eventually create an identity at Hewlett-Packard: She has the knowledge and experience to be successful and has created a new culture at the company because of her laid-back personality, which can be seen in this letter to all employees in which she identifies herself as "Meg."
In my opinion, J.C.Penny is a can't miss investment with Ron Johnson as the new CEO. Johnson is the previous senior vice president of Apple who many believed would become the new CEO once Steve Jobs retired from the company. However, he left Apple before the death and resignation of Steve Jobs to tackle the challenge of rebuilding J.C.Penny and competing with the likes of Kohls (KSS) and Macy's (M).
Ron Johnson was one of the most influential leaders at Apple and used his experience in retail as a way for Apple to profit by selling its product in its own stores. Johnson is widely considered to be the primary reason that Apple returns the greatest sales per square feet of any other company. In fact, its sales per sq ft. is the best in history and is nearly 4x greater than retail super giant Wal-Mart (WMT). Johnson is a genius at getting the most out of space and knowing how to design a store so that it's appealing to the consumer. The only problem will be finding enough products that consumers want that will fill a store the size of J.C.Penny.
J.C.Penny is a struggling company that lacks an identity or direction which makes Johnson's job much more difficult. The companies had decent leadership in the past but has been unable to separate itself and create an experience or an advantage over its competition. So far Johnson's most significant change has been the partnership between JCP and Martha Stewart (MSO). The partnership will allow J.C.Penny to feature MSO products and the two companies are also developing an e-commerce site together.
The partnership between JCP and MSO gives us some insight into the plans of Ron Johnson and how he plans to create an identity for the company. I believe he will seek other specialty brands, such as MSO, and will build the company through these partnerships and perhaps individual e-commerce sites with the partnerships. It's hard to say for sure how Johnson plans to utilize MSO, or how additional partnerships will be created, but I anticipate J.C.Penny being a completely different company within the next five years.
J.C.Penny's revenue is declining and its profit margin is among the lowest within its industry which makes the CEO's job even more difficult. The companies margins have steadily declined since 2008 and its stock has lost more than 50% of its value during the last five years. The companies a mess and regardless of what changes are made in the immediate future it will take time for Johnson to create sustainable growth and value for shareholders. However, I believe that success is likely, and that investors should be patient and simply forget about their shares for the next five years, or buy more when opportunity presents itself. Johnson wouldn't have left Apple if he didn't believe that J.C.Penny could be changed therefore I will buy shares in this company when times of value are present and give Johnson time to grow this company into a very large company within the industry.
There are many new CEO's who are leading high-profile yet troubled companies into the future. I am most impressed with Whitman and Johnson and I believe that these two CEO's will succeed and grow their respective companies in the next five years. It's unrealistic to expect immediate results in a troubled company. Even the great Steve Jobs faced problems after his permanent position as the new CEO of Apple began; and most likely he already knew what products he was developing and how to market the products. Investors should set realistic expectations and expect loss during the first year, but then use the loss as an opportunity to capitalize on value. One of the most successful large companies in 2011 was Intuitive Surgical (ISRG) which has posted earnings growth of 40% and revenue growth of 30% year-over-year. However, when the companies new CEO Gary Guthert began in 2010 the stock traded with a one year loss of nearly 25%, during the transition. These new CEO's are bright people and with time should be able to lead these two companies into a new era with high profits and great returns for many years to come, but investors must have patience!