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These Stocks Could Thrive With a Leadership Change in 2022

By Rachel Warren, Jason Hall, and Toby Bordelon – Jan 14, 2022 at 11:28AM

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Both companies have made headlines lately, but not for good reasons.

Among the variety of factors to consider before you invest in a stock, leadership is most definitely one of them. In this segment of Backstage Pass, recorded on Dec. 20, Fool contributors Jason Hall, Toby Bordelon, and Rachel Warren discuss the top stocks that are due for a management shake-up in 2022.

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Jason Hall: TPI Composites (TPIC -1.76%). I feel like the three of us have talked about that company every time we've been on together for the past month. Does that sound about right?

Rachel Warren: That's fair. 

Toby Bordelon: It comes up a lot. It's true. Almost as much as Peloton does.

Jason Hall: I know we talk about companies that just dumb stuff happens to, and sometimes it's self-inflicted. With TPI Composites, it's very self-inflicted. To go back, this is a company that makes wind turbine blades. They are a contract manufacturer. They're in a great position. They got way out over their skis. They knew this is a cyclical industry, 2021's not been a great year, wasn't expected to be a great year.

Next year, 2022, also the expectation is it's not going to be a great year. They went and spent a ton of money on capital projects, adding a manufacturing line to a facility. Issues with that not coming on line.

Long story short, they were apparently right at the verge of defaulting on some debt and had to bite the bullet and take the devil's bargain with Oaktree Capital Management, 11% interest rate to get $400 million to stave off the current lenders.

Well, it turns out their CFO [chief financial officer], I mentioned this in the intro, resigned under, I shouldn't say cover of darkness, I should say resigned under the cover of 8-K, which is the SEC [Securities and Exchange Commission] the current form, when there's material information to report and when your CFO resigns, that's material information.

Here's the thing: I'm going to do a screen share. I just love walking people through this stuff, right? Here we have the company's investor relations website. What we don't have is any press releases after Nov. 8 when it reported earnings and its terrible deal with the folks at Oaktree.

Now, I happened to get an email from the company as part of the SEC filings emails that I get from other companies telling me there was an SEC filing. I read that filing and it was about a new appointment for their chief commercial officer, which hey, that's great, that's good.

They're bringing a chief commercial officer, I love that. But I noticed this right here: interim chief financial officer and principal accounting officer, and I'm like: "Wait a minute here. I don't remember them having an interim CFO."

So I went here, which is, went to EDGAR [searchable data base], went to their SEC filings, which brings me here and this is the one that I just read. And I'm like, huh, Dec. 13. There was a SEC filing that I didn't see, which is on Dec. 13, Bryan Schumaker notified TPI Composites divisions his intention to resign from his position of chief financial officer of the company. I think this is a good thing.

I think this is somebody taking responsibility for what they did. I think the company is probably better with a change in leadership here. Obviously, it's going to depend on who they bring in as their CFO and whether or not it was just the CFO that has culpability and how much responsibility their CEO has, and if the CFO is just taking a fall here.

So here's the question guys. Toby, go first on this one. Is there another company out there that you follow that you think would do better with a change in leadership?

Toby Bordelon: Well, I started thinking about this, well I don't really want to steal what I think Rachel's going to talk about. But then I decided to steal it anyway. [laughs]

Jason Hall: Good man.

Toby Bordelon: Activision Blizzard (ATVI -1.39%), right? Could they use a change of leadership? Yeah, I think they could. They haven't had a change yet. Well, they have had a little bit of a change in leadership, right?

But not where they need one, not a change up at the top. I think at the CEO position, maybe in the board. I would love to see some new leadership there. Will we? I don't know, I feel like the story may have fallen off the radar a little bit and the pressure might be slacking off a little bit.

Jason Hall: Exactly what the board and the C-suite was hoping would happen, would happen.

Toby Bordelon: Yeah.

Jason Hall: Get into the holidays, the news cycle would have other things going on that were of interest and they'd be able to just slip through and have no heat or light put on this.

Toby Bordelon: Yeah, I think that's right. I think that's right. I still have hope that we're going to get a change soon, but we'll see.

Rachel Warren: Yeah. No, I didn't even really start following this company until all these allegations came out in recent months, and obviously, that's put it more on my radar to follow the story. And the business in and of itself is really interesting, but the way the leadership structure is right now, I would never invest in it at this point, given how things are at.

It's interesting because, like you were saying, it feels like Activision Blizzard falls off the face of the earth. What's been happening over the last few weeks, and I found this interesting story by The Washington Post from earlier in December, and it seems like a lot of workers, we know they have staged a lot of lockouts in the aftermath of these allegations and calls for [CEO Bobby] Kotick to resign.

Apparently, they are trying to unionize. And at the time of the article, which was on Dec. 9, employees, were entering "their fifth day of a work stoppage in protest of contractor layoffs at Raven Software" an Activision Blizzard's owned studio. I guess it's produced games like Call of Duty: Black Ops, Cold War, and Warzone. And what's interesting about this is the Activision Blizzard employees, they created a strike fund for workers who've been participating in the stoppage.

I guess their strike fund goal is $1 million, and actually checked today and they've reached $343,155. I don't know if that's going to actually change anything, but it seems like the employees are the ones that are trying to really, really lead the change at this company right now, but they are very much at the mercy of what, management can or is willing to do.

It's interesting, I like that there's at least mainstream coverage of how much the employee body of this company is working to effect change. But whether or not that will actually have a positive outcome remains to be seen.

I think the lawsuit from the State of California and investigation by the SEC is still ongoing, so it'll be interesting to see what that produces.

Jason Hall: One of the challenges with a company like Activision Blizzard is it has a couple of dozen different studios, and those studios often are relatively autonomous, right?

Rachel Warren: Right.

Jason Hall: It's got a long history of buying studios, like the studio that created the Call of Duty games. They acquired and rolled it in, and then the games are been handed off to different studios, but those studios largely are siloed from one another. I think that's one of the reasons it's just so hard for change to happen.

The Blizzard business and the Activision business are still very separate businesses, and that just makes it really challenging for change from the inside. [laughs] But dude, guys, I agree so much. There just needs to be change in the leadership there, even if it's just signaling.

Jason Hall owns Activision Blizzard, Peloton Interactive, and TPI Composites. Rachel Warren has no position in any of the stocks mentioned. Toby Bordelon owns Activision Blizzard and has the following options: short February 2022 $40 puts on Peloton Interactive. The Motley Fool owns and recommends Activision Blizzard, Peloton Interactive, and TPI Composites. The Motley Fool has a disclosure policy.

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