New Shoes to Fill at Nike

One of the bizarre truths about the stock market is that change is usually bad for stocks. Not for companies -- just their stocks. Take yesterday's news out of Nike (NYSE: NKE  ) , for example. William Perez resigned as CEO due to conflicts with founder Phil Knight. Brand Co-President Mark Parker replaced him. And the stock took close to a 1% haircut as a result.

Is this at all fair? I don't think so; nor does my Foolish colleague, Seth Jayson. But don't let that small-f fool you. Our takes couldn't be more different.

Seth, you see, refers to the numbers to argue that Nike's shares are undervalued. My argument, on the other hand, is that dumping shares just because of a management change is, at best, illogical. It's even worse if the change comes at a company that's seen its stock go nowhere, as Nike has during Perez's short reign.

Why is that worse? Because recent history suggests that new blood creates value, and fast. Indeed, Googling "CEO resigns" and "2005" finds a handful of significant executive changes from the past year. Here's what has happened since:

Company

New CEO

Hire date

Stock + /-

Boeing (NYSE: BA  )

James McNerney

6/30/05

+ 2%

Hewlett-Packard (NYSE: HPQ  )

Mark Hurd

3/29/05

+ 44%

Palm (Nasdaq: PALM  )

Ed Colligan

2/25/05

+ 51%

TiVo (Nasdaq: TIVO  )

Tom Rogers

6/27/05

- 21%

Returns provided by Yahoo! Finance

Each of these businesses had experienced significant problems in the months before the top post changed hands, including lengthy periods of stock market malaise. New leadership, however, has (mostly) made a difference, especially for investors in Palm and HP. And while the stock hasn't moved much since he arrived, McNerney's progress in selling the 787 for Boeing is notable; it appears he'll be a value creator as well. That's not to say new leadership is a surefire recipe for value creation, but it might do its part to improve the state of affairs in a stagnating company.

What about Mark Parker, you ask? According to the press release announcing his appointment, he's the brain behind the original Nike Air concept. Impressive. More important for me, though, is his work as Nike's brand chief, because we can measure his progress in that role.

He's done well. According to Interbrand's annual survey of the top 100 brands, since Parker took over in 2001, Nike has risen from 34th to 30th. From 2004 to 2005, the company's total brand value climbed 9% to more than $10 billion. Nice performance. Can he bring similar results to the top job? Only time will tell. Too bad those who blindly sold shares yesterday may never find out.

All warmed up? Great. Exercise your brain with related Foolishness:

Palm and TiVo areMotley Fool Stock Advisorpicks. For more high-performance stocks with muscular results, sign up for a free 30-day trial subscription.

Fool contributorTim Beyersdoesn't spend anywhere near enough time in his Nike cross-trainers. Tim didn't own shares in any of the companies mentioned in this story at the time of publication. You can find out what is in his portfolio by checking Tim's Foolprofile. The Motley Fool has an ironcladdisclosure policy.


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