There are lots of different ways to evaluate stocks. Investors look at financial results, historical performance, valuation, competitive dynamics, and sources of competitive advantage when making decisions about which stocks to buy and sell.
While those are all important factors to consider, one criterion that's easy to overlook is leadership. As a purely qualitative factor, it isn't always so easy to assess, but good leadership can make all the difference in a company's success. CEOs set the tone for the company's culture and direction; make decisions on product, organizational structure, and capital allocation; and fill the other top management roles.
Here are a few top CEOs worth investing with in the new year.
1. Disney's Bob Iger
Walt Disney (DIS 0.08%) has had a forgettable year as growth in its streaming platform slowed while losses mounted, and overall profits even declined in the most recent quarter. At the same time, investor enthusiasm about streaming has waned, and Disney stock has fallen nearly 40% this year.
The entertainment giant surprised investors last month by bringing back CEO Bob Iger, who retired in early 2020, as executives had become frustrated with former CEO Bob Chapek, who had restructured the company to prioritize the streaming division but left much of the creative talent feeling alienated in the process.
Iger comes back to the top job with an outstanding reputation in Hollywood and among the Disney rank and file, as he led the company for 15 years previously, bringing Disney into the 21st century with acquisitions of Pixar, Marvel, and Star Wars, Fox's entertainment assets, and finally the launch of Disney+.
The returning CEO has already gotten back to work, dismissing Chapek's top lieutenants, promising another restructuring, and prioritizing streaming profits over subscriber growth.
Turning the stock around won't be automatic, but the good news is that the company already expects streaming losses to narrow from this point onward and called for break-even streaming profits by 2024 in its earnings call.
Disney has a ton of prized intellectual property and a flywheel business model designed to maximize its value. If Iger can help unlock that potential, the stock could soar next year.
2. Airbnb's Brian Chesky
Airbnb (ABNB 1.05%) has been a disruptor since it began, starting off as AirBed and Breakfast to help Chesky and his roommates pay rent by taking advantage of convention-goers in San Francisco who needed a place to stay.
In the 14 years since then, Airbnb has come to upend the hotel industry, offering more rooms than any hotel chain, with more than 6 million listings on the website.
Chesky has proven himself a worthy leader along the way. When Airbnb was forced to lay off a quarter of its staff, Chesky created an employee talent director to help separated employees find new jobs, and even assigned Airbnb's own recruiters to help them.
More recently, Airbnb has responded to a new round of user concerns, revamping the site to make it easier for users to see the actual price they'll pay after so many complaints about hidden cleaning fees. The company also just made a unique move to bring more supply online, partnering with apartment landlords to give renters the ability to Airbnb their homes in at least 175 buildings.
2023 could be a pivotal year for Airbnb as the stock has slumped this year in spite of strong results; investors seem to think it could get hit hard by a recession. If Chesky can navigate through those economic headwinds and continue to innovate, the stock could be a big winner next year as it trades for a price-to-earnings ratio of just 40, a great valuation for a stock with the growth potential of Airbnb.
3. RH's Gary Friedman
RH (RH -3.54%) is in a unique position these days. The company has been battered by a collapse in the housing market; revenue and profits are down significantly in its third-quarter earnings report. But it's investing aggressively for the long term.
In the company's shareholder letter, Friedman said that things would get worse before they get better for the business and said that headwinds from the housing market weakness could persist for several more quarters.
In spite of those challenges, RH, the home-furnishings company formerly known as Restoration Hardware, is embarking on its most ambitious reinvention ever. The company is extending the RH brand from home furnishings to a wide-ranging luxury brand that includes hotels, restaurants, luxury jet and yacht charters, a streaming service focused on architecture and design, and a business that will sell fully furnished homes designed by RH.
Friedman is a visionary in his field and has led RH to superior returns over the past decade with the stock up 700% since its IPO. Several years ago, he made the controversial decision to shift to a membership model that offers 20% to 25% discounts on all merchandise in exchange for a $175 fee. Though the stock initially fell on the move, it's paid off -- creating a built-in loyal customer base in its members. And it positions the company well for the expansion of its luxury brand to new categories.
While next year could be a challenging one for RH's financial results, the company's newer businesses could begin to gain traction. With the stock trading at a P/E ratio of 9, it won't take much to send the shares soaring again.
