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Strong Management Can Turn Laggards Into Market Winners

Green Mountain Coffee Roasters (GMCR). Krispy Kreme Doughnuts (KKD) . Hewlett-Packard (HPQ).

When considering whether or not to invest, the effects of new management, both good and mediocre, cannot be understated. For evidence, consider the three companies above.

Smart decisions by new management can spur strong demand for the company's shares, causing prices to soar to new heights. However, management's immediate impact on a stock price can be misleading. Poor buy and sell decisions can have costly consequences to your portfolio.

The key? Watch carefully. You have to be patient. A price that goes up continuously over time, combined with institutional support, will show whether the impact of new management is truly positive and sustainable.

Investors familiar with the investment system also know that you cannot consider new management, new products or new services in a vacuum. All other facets of the strategy must also be present and aligned, and this takes time.

The stock's IBD ratings must be strong. The stock should be part of a leading . The company must show superior profit and , exceeding 25% quarter after quarter.

After seeing its stock price fall from 115.98 to 18.36 in 10 months, Green Mountain's board took action, searching for a new CEO. Hiring former Coca-Cola (KO) executive Brian Kelley in November 2012 has proved to be a lifesaver. A combination of innovative beverages, partnerships with the industry's top brands and deals with non-coffee brands has transformed Green Mountain into the dominant player in the single- serve coffee and tea market.

Krispy Kreme's new management team may be one reason why the stock has rebounded from 1.08 four years ago to a recent high of 21.74. Krispy Kreme is focused on growing franchises from 506 to 900 internationally by 2017 and from 240 to 400 in the U.S. It's introduced specialty coffee drinks and pushed to market the quality of their products.

HP offers a different example: a false start that just might have a happy ending. After cycling through several CEOs in the last five years, the computing systems pioneer hired Meg Whitman in September 2011.

The stock initially surged to 30 shortly after her hiring, but sank late last year to as low as 11.35. Falling PC, printer and ink sales and statements from Whitman, that the turnaround would take longer than expected, have hurt.

HP's latest success story is still being written. Comebacks are always possible under the right circumstances. The stock has bounced back in 2013. But an impressive resume does not always lead to impressive results.

Editor's note: Reazor, director of IBD Meetup, will present at the Aug. 15-17 San Francisco Money Show .