Turnarounds – Do they work?

Every Business gets tested in the marketplace. Sometimes, the company just loses its way and fails to get the customer attention it’s used to, and that impacts everything from revenues to profits to stock price performance. The company  then goes through long periods of business and stock underperformance. The market punishes the stock and forces the company to work on leadership and operational issues.

The companies then work on turning the business around, and the perception changes, and the stock makes a big comeback. But turnarounds are never simple. There is hope of a turnaround and then the real turnaround, and when there is a mismatch, the stock goes back to underperforming again. There is money to be made during the turnaround process.

Boeing – The stock is finally taking off

The entire market is selling off except Boeing stock. The stock is up nearly 25% over the last month. And it seems like the rally has just started. Boeing appointed a new CEO back in August, and he is working on the operational and supply chain issues. The worker’s strike is over, and the company has resumed production. It’s showing up in the stock price.

Boeing stock has been underperforming for a long time. See the chart above. The stock traded below 200 dma for nearly the entire 2024 (Underperformance zone). The stock declined from 210 to 160 (Point 1 to Point 2). It then rallied to 200 dma only to sell off (Point 2 to Point 3 to Point 4). Then, on every pullback rally to 50 dma – it sold off, and the stock from 180 levels declined to 140 (point 5 to point 6 to point 7). 

Then, out of nowhere, the stock formed a bottom at 140 – and this time, on a rally, it broke past 50 dma as well as 200 dma. This qualifies as a classic technical turnaround. The stock is now firmly buy on dips. One should look to add the stock nearly 160. The stock should do well in 2025 and can rally 30-50% from 160 levels.

Starbucks – The turnaround under stress

Starbucks shocked the investing community by announcing a sudden leadership change on August 13. The press release said that the current CEO, Laxman Narasimhan, is resigning immediately, and Chipotle CEO Brian Niccol will assume the CEO role in September. Brian Niccol has an amazing track record at Chipotle and Yum Foods, so Starbucks stock rallied 24% that day with a huge Gap (see point 5 in the chart below). Usually, it’s considered a Reset for the stock. 

Why the leadership change – When the business struggles, the stock price reflects that. Starbucks’ stock struggled and traded below 200 dma during 1H CY2024. The stock declined from $100 levels to $72 (Point 1 to Point 3) and then formed a bottom (Point 3 and Point 4).  Then came the shock announcement of a new CEO, and the stock rallied big. The $90 level became the new base of the stock. But this month, the stock has come under serious correction and is down to 200 dma. 

The Hope of Turnaround is getting tested as the company continues to grapple with labor issues. The workers’ union representing over 10,000 baristas at Starbucks said its members would strike at stores in Los Angeles, Chicago, and Seattle for five days starting today, citing unresolved issues over wages, staffing, and schedules.

The Big thing to watch is how the management handles this crisis. Keep an eye on the stock for the verdict. If the stock retains the level above $90, the turnaround will have more takers, or the stock will languish or correct. 

The Winners

Chart Source: Finviz.com

Please do your own due diligence before trading. Nothing here or in the newsletters constitutes financial advice. These are just my views based on my experience.