Pay Close Attention For Apple's Next Entry Point
Today all eyes are focused on Apple stock. CEO Steve Jobs is once again stepping away from the company for health reasons, with a slight difference this time as the leave of absence carries an ‘indefinite’ label. And once again, the stock is off on the market open on the news as investors lock in profits, some fearing the worst.
Given the upward trajectory that Apple stock has enjoyed (not to mention the perceived impact Jobs has had on their products), I can’t say I blame longer-term holders for taking profits. It’s never wrong to take profits.
But for those who have been waiting for an entry point to the stock, pay close attention. We’ve seen this movie before.
Hewlett-Packard fell 11% in the three weeks following celebrity CEO Mark Hurd’s departure as investors bet that there was no way the company could continue its growth without Hurd’s hand on the acquisition tiller. And yet, since his departure a number of mergers have been announced, and today the stock trades above the pre-Hurd departure price of $42.60.
Martha Stewart Omnimedia is another case in point. In June 2003, Martha was indicted by the government on charges of securities fraud and obstruction of justice for insider trading of ImClone Systems stock. Martha Steward Omnimedia stock fell 15% in two days, but nine months later it was over 24% higher… and if you held it until the end of 2004 you made over 175%.
Oracle risked becoming one of these stocks where the cult of celebrity could have caused a major price stumble upon Larry Ellison’s inevitable departure (not even Larry will work or live forever). But now, with Mark Hurd, an acquisition King in his own right, waiting in the wings, problem solved… probably.
Is it perhaps different this time for Apple, given the serious nature of Jobs’ health concerns? Maybe. But none of these companies got where they were because of just one person. Yes, even Apple. Jobs had his Wozniak, now he has Tim Cook. Hewlett-Packard has shown that the bench is deep even post Hurd. Martha Stewart Omnimedia went on to great things while Martha was busy decorating cell blocks. Even Disney has evolved to something that I doubt Walt could have imagined before his death in 1966.
Investing in companies where there is a celebrity CEO contains headline risk not present in other companies. That being said, smart CEOs are more likely to become celebrity CEOs, and smart CEOs surround themselves with strong teams. Consider that in your investment thesis the next time a celebrity CEO steps aside: it just might be a buying opportunity.
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Trader disclosure: Patty Edwards owns Apple and Oracle for clients.
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