Companies can and do change their stripes to get better, to improve over time. Sometimes the moves are evolutionary, and sometimes they are revolutionary.
Today we have a cavalcade of companies that have changed stripes in order to generate better returns for investors, and the results are remarkably positive.
Let's start with Green Mountain Coffee Roasters (GMCR), which after today should rename itself Green Mountain Coke (KO) Refrigerator. That's because, last night, Coca-Cola bought a 10% stake in the company and is going to partner with Green Mountain to develop a cold-soda maker similar to the hot-coffee maker -- the Keurig for soda.
Until last night, Green Mountain was a company that had clearly peaked. Its numbers were slowing, and the company's valuation didn't reflect it. But Brian Kelly, the CEO, late of Coca-Cola, saw the weakness and thought big. He partnered with Coke to develop a distinctly disruptive machine that, from the looks and sound of it, is much easier to use and therefore better than SodaStream (SODA). Plus, Coca-Cola has international distribution and could really blow out sales of this product. In one fell swoop, this short candidate of some gravity had become a long with a terrific call option.
Then there's American Airlines (AAL) -- a company that, not that long ago, was bleeding red ink. Now that it has merged with U.S. Airways, it has taken out a principal competitor, and you can see that the company's transformed. That's why I no longer fear for American Airlines when I read that a record 49,000 flights have been canceled in USA Today. At one time, when I was still running a hedge fund, I would have been shorting this stock aggressively on these cancellations.
Then there's AOL (AOL). While the stock reacted negatively to the earnings today, it has been a huge winner because the company has reinvented itself as a play on video with advertising and search -- an Internet network meant to rival the traditional broadcast and cable companies. It's throwing off cash and doing remarkable things, blowing out revenue while controlling expenses. The company has a big share-buyback program in place, and while it didn't put much money to work this quarter, I think will be right back in the market now that the quarter has been reported. AOL was a dial-up non-content company that is now capable of rivaling Google (GOOG) and Yahoo! (YHOO) on video, back from the dead, transformed by CEO Tim Armstrong.
Staying in tech, 18 months ago Facebook (FB) was a slowing desktop-billboard company with a product that simply didn't transfer and had little presence on mobile. Fast-forward to now, and you can see that it is the premier mobile-phone company with the best interface for both advertisers and users. The common worry with Facebook used to be that the company had peaked, but that concern is now well behind it, and I foresee many years of multiple growth streams.
I also see the possibility that we will look back a few years from now and marvel at how cheap Facebook was. One has to hope that Twitter (TWTR) will be able to quickly reinvent itself so that its dwindling user growth will regain the luster of what it had been a year ago. It worked for Facebook, and it can work for Twitter.
We saw Under Armour (UA) go from a maker of pretty cool athletic wear to a technology powerhouse that innovates. The company now develops products that keep you warm in the cold and hot in the winter, using technology that can measure strength and output in a way that we wouldn't have dreamed possible a couple of years ago.
Of course, some of these transitions take a long time. Bob Iger, the CEO of Disney (DIS), has worked hard to accumulate a series of terrific content providers, including Pixar, Marvel and now the Star Wars franchise. You can see how he has been able to create new movies like Pirates of the Caribbean iterations, or Cars, or Frozen, that later can be amortized across everything from the Broadway stage to the theme parks.
Disney is being transformed into a franchise that can be a regular hit-maker, and I think that this quarter you saw the end to movies that aren't franchises, and the beginning of a multiyear rollout of what amounts to almost guaranteed hits. That's why Bob Iger is one of my Bankable 21 Executives from Get Rich Carefully, and why Disney remains the best stock to buy for your children.
We know that companies like Marathon Petroleum (MPC) have created great value by splitting up. Last night on Mad Money I was interviewing Gary Heminger, the CEO of the refining portion of the split-up, and I was shocked to hear how much more the company can do to bring out even more value. Marathon is the perfect example of my "get busy living or get busy dying" kind of stock. It has refused to stagnate.
Who knows how much value accompany like Chevron (CVX) or an Exxon Mobil (XOM) or Royal Dutch Shell (RDS.A) could bring out if they were so inclined? I still trust that Occidental Petroleum (OXY) will do so. We know that Linn Energy (LINE) sure did when it bought Berry Petroleum: Virtually overnight, Linn had transformed itself from a slow-growth natural-gas company to a much-faster-growth oil company with a natural-gas tail.
Sure, it's prosaic. But think, for example, about how well Martin Marietta Materials (MLM) has done since its purchase of fellow traveler Texas Industries. The stock is soaring today because competitor Vulcan Materials (VMC) put up good numbers.
Finally, of course, PVH (PVH) and VF Corp (VFC) under Manny Chirico and Eric Wiseman, respectively -- both among the Bankable CEOs chronicled in Get Rich Carefully -- have repeatedly reinvented themselves via acquisitions. The apparel stocks have been a total bear here because of worries about retail sales. However, today we got numbers from Kohl's (KSS), L Brands (LTD) and Ann (ANN) that weren't very attractive at all, and the stocks ran, so perhaps people are too negative on both VF and PVH.
I think all companies with stagnant stock prices should be thinking along these self-help lines in order to create more value and give the market what it wants -- growth. For example, I reiterate that if Apple (AAPL) wants to give its stock a growth injection, it has to make a synergistic acquisition to its iTunes business, and that would mean buying Netflix (NFLX). Microsoft's (MSFT) new CEO, Satya Nadella, needs to do something to advance its presence in social, mobile, cloud and connectivity. That means buying a company like AOL, which has the platform needed to dominate search video. Neither acquisition would strain these companies.
This market wants growth. It could come from dividing a company into pieces in order to bring out more focused businesses that can grow faster under two roofs. Or it could come from reinvention through new products, or from acquisitions that take out competitors and increase pricing power. Regardless of how it happens, when we get it, the stocks get bid up. When we don't, the stocks tend to sit exactly where they have been.
This is a vital lesson for corporate America that far too few company management teams seem to understand. But when they figure it out, the rewards tend to happen rather quickly for those who are opportunistic enough to take the chance.