Did dropping the controversial chef help some of the biggest stocks on the market?
When a high-profile figure becomes a public relations disaster, companies hiring the celebrity are forced to decide what next to do.
Lance Armstrong’s public admission of doping during his Tour de France wins led to all of his sponsors dropping him. The cyclist estimated he lost $75 million in just one day. New England Patriot Aaron Hernandez lost endorsement deals from Puma and CytoSport after being charged with first degree murder.
And then there’s Paula Deen. After news came out the celebrity chef made highly offensive remarks, companies who had deals with Deen or carried her products were in the spotlight. And so were their stocks. These companies include J.C. Penney, Sears, Target, Novo Nordisk, Smithfield, Caesars Entertainment, Wal-Mart, The Home Depot, Macy's and Liberty Media among others.
From the day before the story broke (June 18) to June 24, shares of J.C. Penney fell 12% and Caesar’s Entertainment fell 10%. Compare those to the S&P 500’s drop of 5% during that same time period. J.C. Penney carried Paula Deen-branded merchandise while Caesar’s Entertainment had four Paula Deen restaurants at their hotel and resorts.
This isn’t to suggest that all of the drops in Paula Deen-related stocks were a direct result of the Deen scandal. However, markets don’t like uncertainty and, when an unforeseen risk appears in a stock, it prices get discounted because of it.
And, sometimes, that’s where a buying opportunity can appear.
If you purchased shares of J.C. Penney on June 24, you would be up 8% right now while buying Caesar’s would have given you a return of 14%. That’s much better than the S&P 500’s increase of 3% during the same time period.
But does that mean there was a “Paula Deen Effect”?
“I don’t think you should have been in these stocks because of [Paula Deen],” says CNBC contributor Zachary Karabell, president of River Twice Research. “And, you probably shouldn’t be in these stocks now that she’s not part of them.”
“Many of these companies represent the more challenged space of American retail,” says Karabell. “In general, if you’re not really, really high-end and even if you’re really, really low-end, this is margin-challenged, high-volume but growth-limited business.”
Of all the companies affected by the Paula Deen scandal, there’s one company Karabell thinks is better than the rest: Target.
Talking Numbers has asked contributor Richard Ross, Global Technical Strategist at Auerbach Grayson, to look at the charts and determine if Karabell’s take on Target is, well, on target.
To see the rest of the analysis by Karabell and Ross, watch the video above.
Also, watch our guest host Mandy Drury on CNBC’s Street Signs, 2:00pm Eastern Time.