Three former Fortune 500 leaders are having a case of the Mondays today.
First, Best Buy Co. (BBY) chairman and founder Richard Schulze opted to resign in the face of a public relations mess. A recent audit on the company revealed that Schulze had knowledge of former CEO Brian Dunn’s improper relationship with an employee and failed to act. This leaves Best Buy Co. Inc. without a CEO or a chairman, and the company is working double-time to replace both Schulze and Dunn, who left in April.
It shouldn’t be a surprise that Best Buy Co. is currently an F-rated stock in my Portfolio Grader tool, and it has remained in sell territory for some time now. Without a clear leader to direct the company’s 167,000 employees, it will be difficult for this company to firm up its fundamentals anytime soon.
Then on Friday, the Street buzzed with news that JP Morgan Chase & Co. (JPM) made a serious blunder in forecasting its profits: The company actually incurred a $2 billion trading loss in the past six weeks and could face an additional $1 billion in losses in the second quarter.
In my earlier blog post I concluded that this was evidence why we shouldn’t touch financials with a ten-foot pool, and today has brought more support to this thesis. Ina Drew, who served as Chief Investment Officer at the firm, has decided to retire. She is the first executive to resign after this debacle, but analysts expect that there may be more executive casualties. At this moment, J.P. Morgan expects to replace her with capital markets head Matt Zames. As to be expected, JPM only receives a C in Portfolio Grader, and it’s quite likely that this stock will continue to flounder.
Finally, on Sunday the markets woke up to the news that Yahoo! Inc.‘s (YHOO) Chief Executive Officer is also stepping down after just 17 weeks with the company. This time, Scott Thompson was revealed to have padded his resume with false education credentials.
While the company tries to find a new CEO, media and advertising chief Ross Levinsohn will step up as interim CEO. This is one of many reasons why YHOO is a C-rated stock in Portfolio Grader. And, considering the company’s existing problems with declining user activity and the eroded trust in leadership, I don’t expect this stock to rebound for some time.
And while no company can be entirely immune to temporary pullbacks regarding management changes, you can greatly enhance your safety margin by investing in only the most fundamentally sound companies. The market is getting narrower, and investors are quick to respond to executive shakeups like these.
Today, I’m heading to the MoneyShow in Las Vegas and I plan on updating the blog with pictures and interesting conversations from the show in the next several days. Please stop by if you’re in the area—I have several talks scheduled and I’ll also be at the InvestorPlace Media booth #408 throughout the day in the Expo Center.