One of those sure signs that it's time to hit the exit on a stock is when the CEO of the company abruptly hits the exit before you. When the person in charge of the ship jumps overboard and the company can offer no explanation other than it's for "personal reasons" -- or worse, offers no explanation at all -- it's time to grab a life vest and follow him over.
Investors in Maxtor (NYSE:MXO) may want to search for a flotation device and the nearest gangplank, as CEO Paul Tufano scurried over the railing of the world's second-largest computer disk drive maker. The company gave no explanation for why he left; he left just one month after the chief financial officer left unexpectedly after only two months on the job.
Successful companies want to provide for orderly transitions in their hierarchy. An orderly transition reassures investors and the markets that the business is sound and will continue. Scattering like cockroaches when someone turns the light on does not give one that same sense of assurance. Maxtor apparently turned the light on.
Less than a month ago, the company forecast a loss more than double what Wall Street had expected. In October, Maxtor posted third-quarter losses of $0.36 a share and forecast fourth-quarter losses of $0.18 to $0.22 a share, while The Street had expected a loss of just $0.07. The stock has been hammered all year for poor performance and is off almost 70% from its 52-week highs. Maxtor's third-quarter shipments of enterprise drives fell 9% year over year and were flat from the previous quarter. The entire sector, though, has hit some rough times, as competitors Western Digital (NYSE:WDC) and Seagate Technology (NYSE:STX) have also had some sadistically sad stories to tell. It is estimated that Seagate owns 50% of the drive market and Maxtor only 11%.
Regardless of the reason offered for a top executive's sudden resignation, it usually signals problems. Analysts are suggesting that Maxtor's board of directors wanted a quicker return to profits than the company was achieving. I ain't buying it. Last month, when CFO Michael Bless abruptly left, Tufano called it a "white elephant in the living room" to have two CFOs depart so quickly. Bless had replaced Robert Edwards, who had resigned in March. Now it's Tufano's run for the exit.
Investors would be better off grabbing their life preserver, selling their holdings, and waiting for the seas to calm before venturing aboard again.
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Fool contributor Rich Duprey has been told his milky white skin resembles that of a white elephant. He does not own any of the stocks mentioned in this article.
