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Red Alert on These Stocks as Top Executives Quit

Larry Ellison is officially out as CEO of Oracle (ORCL).

Ellison is the last of the original Silicon Valley pirates to be supplanted as CEO.

(The other pirates include Bill Gates, Steve Jobs, Bill Hewlett, and David Packard.)

Mark Hurd, 57, and Safra Catz, 52, two of Ellison’s trusted confidants, will take over as Co-CEOs.

For investors, Ellison’s departure is a warning signal… that is, to run for your life.

In fact, if you own any Oracle stock, I recommend dumping every share at the Opening Bell.

Here’s why…

When Executives Leave… You Should, Too

Back on May 7, I wrote a column detailing the short position that famed investor, David Einhorn, had just put on shares of athenahealth, Inc. (ATHN).

Einhorn asserted that the stock could lose 80% of its value in the coming months on the merits of a soon-to-burst technology bubble.

Although it hasn’t happened, athenahealth has dramatically underperformed the S&P 500 over the last three months.

At the time, I agreed with Einhorn to exit the stock… but not because of a technology bubble.

You see, athenahealth’s CFO, Tim Adams, had just resigned.

As history shows, an outgoing CEO or CFO is reason alone to dump shares… that is, over a short-term investment horizon. It creates too much uncertainty – and uncertainty is a dirty word on the trading floor.

So in the spirit of avoiding uncertainty – along with exiting all positions in Oracle’s stock – I recommend shunning the following companies, as well…

Clorox (CLX)

Last Thursday, Clorox announced that Don Knauss will step down as CEO. A former Marine, Knauss became one of a rare few to defeat fiery activist investor, Carl Icahn, when Icahn made a hostile takeover bid in 2011. But has Knauss lost his mojo? He’s coming off a year where he oversaw a wafer-thin 0.6% rise in Clorox sales and a 3% drop in the firm’s share price. With rampant competition from generic brands, Clorox is spending more on marketing – but still struggling to gain traction.

RadioShack Corp. (RSH)

On September 12, RadioShack CFO John Feray jumped ship after just eight months on the job. When asked about his resignation, Feray cited personal reasons… but that’s hard to believe considering the company warned of imminent bankruptcy just days before Feray’s departure. RadioShack’s plan to turn its struggling business around has largely failed, so expect the worst from RadioShack shares.

Bankrate, Inc. (RATE)

Bankrate runs websites that compare personal finance packages, but, as it turns out, the firm needs some accounting guidance of its own. On September 15, Bankrate shares fell 13% on news that not only was Bankrate CFO Edward DiMaria resigning, but also that the SEC was set to investigate the “improper accounting of more than $1.5 million of accruals and expenses.” SunTrust analyst Andrew Jeffrey said he’d be surprised if the investigation revealed any malfeasance, but with DiMaria running for the hills, something stinks around Bankrate headquarters.

Avon Products, Inc. (AVP)

On September 8, Kimberly Ross, CFO of the makeup and consumer products company, quit her position. Both Avon and Ross’ new employer, Baker Hughes, gave her a glowing review… but AVP’s numbers tell a different story. In fact, Citigroup has downgraded the stock in light of Ross’ departure, citing the company’s weak internal controls, depressed cash flow, and high overhead costs. Citigroup analyst Wendy Nicholson also said that “the symbolic importance of Ross abandoning ship at this stage is hard to overstate” and that she was “throwing in the towel.” If that doesn’t send a clear message about Avon’s prospects, I’m not sure what would.

Panera Bread (PNRA)

Having only been on the job for 18 months, Roger Matthews resigned as CFO of Panera Bread last month. While the company trotted out the usual line that Matthews is “pursuing other opportunities,” we think otherwise. Amid restructuring, Deutsche Bank says Panera’s fundamentals “have been on the decline and difficult to forecast.” So it’s perhaps no coincidence that following an interview with Matthews, Wunderlich Securities put his decision down to “corporate stress.” Shares are certainly stressed, too. Since hitting a 52-week high of $193.18 in March, the price has sunk by 17%. Panera may make delicious sandwiches… but its stock has E. coli. Avoid it!

Other companies to have seen their CFOs resign recently include Tata Communications (TATACOMM) and technology firm, Intevac (IVAC). While both are putting a positive spin on the departures, the truth behind the scenes may be very different. Either way, don’t take the risk with these stocks.

Onward and Upward,

Robert Williams

Robert Williams