The conventional wisdom is that hiring older, more experienced S&P 500 CEOs is the best way to ensure solid results, financially and in the markets. However, recent data from executive search firm Spencer Stuart suggests that conventional might not be the best way to handle the future changes all industries go through.
“What worked at a CEO’s last job — at a different company with a different team facing a different set of micro and macro problems — is just not likely to work again.” stated Bloomberg Opinion contributor Beth Kowitt.
According to Spencer Stuart consultant Cathy Anterasian, who specializes in CEO succession, almost 30% of new S&P 500 CEOs in 2022 were under 50, double 2018 levels.
As Kowitt finished her Feb. 12 opinion piece, “refusing to move on to the next generation of leaders can be a risk all its own.”
In fact, if you look at some of the most successful CEOs over the last 25 years, more than a few were 40 or under.
Here are three under-50 S&P 500 CEOs with must-buy stocks.
Matthew Meloy, Targa Resources (TRGP)
Matthew Meloy has been CEO of Targa Resources (NYSE:TRGP) since March 1, 2020. Meloy was 45 as of March 30, 2023.
Since taking the top job of the integrated midstream natural gas and NGLs (natural gas liquids) infrastructure company, its shares have gained nearly 200%, double the performance of Exxon Mobil (NYSE:XOM).
In May 2023, I recommended Targa as one of three stocks to buy whose share prices added up to $500, or thereabouts. At the time, analysts really liked its stock – 19 out of 20 rated it a Buy, with a target price of $98.50 – and I like the fact that its price-to-free cash flow was only 6.68. The inverse is free cash flow yield. Targa’s was 14.7%. Anything over 8% is value territory.
Where is it today?
There are 22 analysts covering its stock with 21 rating it a Buy and a $106 target price, 10% higher than where it’s currently trading. Based on trailing 12-month free cash flow of $826.2 million and a market capitalization of $21.6 billion, its free cash yield is 3.8%, which is slightly below fair value.
Yielding 2.1%, you pay more for quality.
Hassane El-Khoury, ON Semiconductor (ON)
Hassane El-Khoury has been CEO of ON Semiconductor (NASDAQ:ON) since December 2020. El-Khoury was 43 as of the company’s 2023 proxy.
Since taking the top job of the provider of intelligent power and sensing solutions for the automotive and industrial markets, ON shares have increased by 163%.
El-Khoury had been the CEO of Cypress Semiconductor until its sale to Infineon Technologies (OTCMKTS:IFNNY) in April 2020 for 9 billion euros ($9.7 billion). Khoury, who hails from Lebanon, worked at Cypress for 13 years, becoming its CEO in August 2016.
While its corporate name is ON Semiconductor, it operates under the Onsemi brand, which generated $8.3 billion in revenue and $2.26 billion in non-GAAP income in 2023.
Between 2024 and 2027, it plans to grow its revenue by 11% compounded annually at the midpoint of its guidance, with annual free cash flow of $3.75 billion in 2027 – it was $402 million in 2023, down from $1.63 billion, due to a 50% increase in capital expenditures toward its future growth – which should lead to a much higher share price.
Of the 34 analysts covering its stock, 19 rate it a Buy, with a target price of $90.00, 14% higher than where it’s currently trading.
Mark Zuckerberg, Meta Platforms (META)
It’s hard to believe but Meta Platforms (NASDAQ:META) CEO Mark Zuckerberg will only turn 40 this May.
He is the fourth wealthiest person on the planet with a net worth of $170 billion. In 2024, alone, his wealth increased by nearly $42 billion, more than double Nvidia’s (NASDAQ:NVDA) CEO and co-founder Jensen Huang. Zuckerberg has been CEO since founding the company in 2004.
There is no question that Meta’s revival over the past year – its stock is up 175% over the past 52 weeks – is one of the most significant turnarounds in recent history. It was dead in the water in early 2022 after reporting Facebook’s first ever drop in daily users.
“Meta CEO Mark Zuckerberg may be keen to coax the world into an alternate reality, but disappointing fourth-quarter results were quick to burst his metaverse bubble,” The Guardian reported Hargreaves Lansdown equity analyst Laura Hoy’s comments about the company’s 2021 results.
In 2021, it had operating income of $46.8 billion on $117.93 billion in revenue, good for a 39.7% operating margin. In 2023, it had an operating profit of $46.75 billion on $134.90 billion in revenue, 500 basis points lower than in 2021.
However, when you consider how far it fell in 2022, the rebound is astounding. Further, it’s got plenty of irons in the fire to keep driving revenue and operating profits higher.
Now, if it could only get its Reality Labs business making money, he’d soon become the world’s wealthiest person.
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.
