It hasn’t been a good year for growth stocks. The iShares S&P 500 Growth exchange-traded fund (NYSEARCA:IVW) is down nearly 25% with one month to go in 2022. Some of the worst performers from this ETF are going to need a new CEO.
Before I come up with my three names of CEOs that need to go — it’s never an easy task to determine if a CEO is underperforming — investors need to consider whether growth stocks make sense in 2023.
If they do, some of 2022’s underperformers might come charging back, which makes the task at hand even more difficult. No one likes to see someone lose their job due to a situation (such as the movement of share prices) beyond their control.
So, to qualify for this dubious list, not only must these growth stocks be down in 2022, but they also should be lower over the past five years. In addition, the named CEOs must have been in the top job for at least three of those five years.
Franklin Resources (BEN)
Don’t shoot me; I’m only the messenger.
Franklin Resources (NYSE:BEN) made this list because it was a holding in IVW, which is a collection of companies exhibiting growth characteristics and whose earnings are expected to grow at an above-average rate relative to the market.
The investment firm’s stock is down nearly 20% in 2022 and 37.26% over the past five years, almost 93 percentage points worse than the S&P 500.
I’m pivoting slightly on my first choice.
Rather than selecting current CEO Jennifer Johnson, who’s been with the company in various senior positions since 2003, but only CEO since February 2020, I’ve chosen Executive Chairman Greg Johnson, who was CEO of the company from July 2005 through February 2020.
Since Johnson was CEO or Executive Chairman, Franklin’s stock has moved sideways. That’s an abysmal performance. Over the same period, BlackRock’s (NYSE:BLK) shares are up 797.68%.
Johnson’s no Larry Fink.
And yes, I know, his grandfather founded the company in 1947, and the family controls a big chunk of the stock, but if Franklin were a meritocracy, he’d have been gone a long time ago.
Newell Brands (NWL)
I sure hope that Martin Franklin has sold most or all of his Newell Brands (NYSE:NWL) stock. The company best known for its Rubbermaid storage products has become a jack-of-all-trades, master of none.
As a result, its stock is down 41% year-to-date and nearly 59% over the past five years.
Now back to Martin Franklin.
Franklin built Jarden into a huge business that Newell acquired in late 2015 for more than $15 billion in cash and stock. Three years later, he left Newell’s board and started a proxy fight with Starboard Value, the activist investor. He believed that Newell’s management failed to execute the integration properly.
Ultimately, Martin left that fight, and Starboard recruited Carl Icahn and his son Brett to resume the proxy fight. Today, Carl Icahn owns 8.3% of the company, and Brett sits on the board.
On July 30, 2019, Newell announced the hiring of Ravi Saligram as CEO. More than three years later, its stock has lost nearly 16% of its value. From its May 2021 high, it’s down 52%.
If Carl Icahn wants to get a return on his four-year investment, the CEO has got to go.
A.O. Smith (AOS)
“I love Smith’s business model because it manufactures its products primarily for domestic consumption. That means most of its manufacturing in China is meant for Chinese customers, and the same is virtually true everywhere else it does business — including the U.S.,” I wrote in Nov. 2012.
The good news is that AOS is up 284% over the past decade. The bad news is that the maker of residential and commercial water heaters and boilers is down more than 29% YTD and 3.7% over the past five years, lagging the index by nearly 58 percentage points.
CEO Kevin Wheeler joined the company in 1994, moving up the ranks until becoming CEO in September 2018.
I generally like internal promotions to CEO. However, in this instance, it appears that Wheeler’s been unable to get the company back on track. When he took over, it had annual sales of $3.19 billion and $444.2 million in earnings. In 2021, sales were higher at $3.5 billion, but earnings were essentially the same at $487.1 million.
While the first nine months of 2022 show growth on both the top and bottom line over last year, Wheeler’s had more than four years to tell A.O. Smith’s story.
Investors aren’t buying it. It’s time for an outsider to come in with a fresh perspective.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.