2008 and 2009 have had surprising results when examined for executive turnover.  While the United States went into recession back in December 2007, and most of the world suffered from the growing credit/financial crisis, overall executive turnover levels followed a declining trend as we moved through 2008 and 2009.

• For 2008 CEO turnover declined nearly 10%, CFO turnover declined 14% and overall C-level (as defined by Liberum Research as board of directors, CEOs, CFOs down to corporate VPs) turnover declined nearly 15% as compared with 2007 totals.

• The number totals continued to decline even more precipitously for 2009.  CEO turnover declined 27%, CFO turnover declined 36% and overall C-level turnover declined 30% as compared with 2008′s already low levels.  The numbers would be even more stark if compared with 2007.

The declines in executive management took place while overall unemployment in the United States and Canada continued to increase as we moved through 2008 and 2009. By the end of 2009 with the recession statistically over, the United States had, according to the U.S. Bureau of Labor Statistics, an overall unemployment rate of 10% one of the highest rates for the last few decades.The continuing declines in executive turnover were seen both on a quarterly and annual basis.  Public companies, unless forced to by business events or scandals, have shown a reticence to make changes in their top executive ranks as the leaders of those corporations have made efforts, and in many circumstance extreme efforts, to tightened their belts, lower expenses, inventories and overall employee levels within the lower ranks of corporations.  We expect that once the economy begins to truly recover, the level of executive turnover will begin to rise.

A trifecta of above-trend GDP growth, greater-than-expected inflation and domestic farmers’ strong financial standing should make 2010 a promising year for agricultural industrial equipment manufacturers, as prices for storable commodities stay strong and farmers have the extra cash to update equipment.

“Curves for corn and soybeans, which are two important domestic crops, are still in contango, which means as a farmer, you can still sell forward at pretty attractive relative-to-historical prices to lock in good prices for next year,” said Paul Mammola, an analyst with Sidoti & Company, LLC. “I think that although farmers have spent quite a bit over the past couple of years, the continued trend in strong commodity prices still leads to equipment purchases over the next couple of years.”

With 72 equipment stores across the Corn Belt, Titan Machinery (TITN), with a focus on high-horsepower tractors and carbines, will be a likely beneficiary of this trend toward increased farmer spending.

Mammola also points out that government stimulus dollars may play a role in accentuating industry growth in 2010, as more allocations are rolled out for road and public structure construction.

“It does sound like stimulus dollars are making their way to the companies as we speak. So water is certainly a very interesting industrial theme right now,” said Mammola, citing Crane Co. (CR) as one company that will receive bids for shovel-ready projects. “You have to break away from value investing to play with some of them given the multiples, but I think that’s going to be warranted over the next 12 months.”

Following nearly a decade of growth and the height of the war in Iraq, it’s hard the imagine the defense sector in any better shape as it faces the troop increases ordered by President Obama for 2010.

“The defense companies are sitting extremely well right now. They have just come off nine years of tremendous growth, they all have great balance sheets, and they all have been buying back their own stock and are sitting on a ton of cash,” said Brian Ruttenbur, managing director of Morgan Keegan & Co. “With the projections going from 30,000 troops in Afghanistan at the beginning of 2009 to 100,000 over the next six months, Afghanistan is going to grow while Iraq is going down in terms of the number of troops. So overall funding and appropriations are going up for the defense group, which is a positive.”

Companies such as Raytheon (RTN) that deploy and support asymmetric warfare, intelligence supply, and surveillance and reconnaissance to ground troops will be the most likely beneficiaries of the war in Afghanistan, which presents a unique terrain and enemy as two challenges to the U.S. military.

“Importantly, companies without the large platforms will much better than ones that are directly tied to the large platforms, like the F-35 aircraft carriers, etc,” Ruttenbur said. “We believe the large-platform programs are the ones that probably get cut as we try to ramp up and protect the troops in Afghanistan.”

According to the analyst, 2010-11 will also represent key years for consolidation within the defense sector as both acquirers and acquirees become more realistic with their expectations.

“I would not be surprised if L-3 (LLL) did $1 billion worth of acquisitions in 2010; they only did $85 million last year. Normally they are doing $500 million to $600 million a year,” Ruttenbur said. “2010 is going to be a makeup year for acquisitions.”

The following is an excerpt from TWST‘s interview with Scott M. Swanson, a partner and senior equity analyst at Crowell, Weedon & Co.

TWST: Your coverage area is very broad, but looking at the food, beverage and leisure companies, what are your top picks right now and why?
Mr. Swanson: They are Chipotle (CMG) and Cheesecake (CAKE), and then the third one, Callaway (ELY). I like Cheesecake and Chipotle right now because the quality of management teams – they’re still basically run by the founders – and the strong connection that both of those concepts have with their customers; and they both have very clean balance sheets, and very strong cash flows. So they’re both self-funding on their growth, again with no debt issues, lot of free cash, cash on the balance sheet, etc. So they’re both very clean from a financial position; management teams are very strong and, as I said, I think that the appeal that they have to their customer base is very strong. I think Callaway is similar in a lot of regards, too, in that sense. They obviously have a very strong presence in the golf market, a very strong tie with their consumer. And they had really an awful year this year because of what happened, because of the timing of the financial crisis. Winter and spring, that’s the big season for golf equipment sales to ramp up the factories and get the new product out into the retailers, all in advance of the spring selling season. And so all that was happening and inventories at retailers were growing, all while the economy was sort of unraveling. So that led to a lot of discounting, a lot of clearance activity this year. That really hurt the margins – the sales for this year should be down about 16% for Callaway. So it’s a big hit but certainly not too horrible. But the gross margin was hit pretty hard because of all the discounting. But looking ahead, I think that as we enter 2010, the industry is going to enter with inventories in much better shape. I think it will be much more right-sized for the current macro environment. So margins should improve, sales should rebound a little bit. And then I think one of the unappreciated aspects to Callaway is the fact that about half of their business is overseas. But the real story is the fact that golf is really growing rapidly in a lot of the other markets that they are in, particularly Pacific markets like Korea and Australia. And so they have big opportunities in some markets; they are going to be growing over the next 10-plus years, they will be growing much faster than in the United States. And I think an interesting story here was that everybody in the golf industry was pleased to see that golf got added to the 2016 Olympics. What’s interesting about that is that the 2016 games will be in Rio, in Brazil, and the city of Rio, the population is somewhere between 8 million and 12 million people. Rio has two golf courses. So they obviously have to expand golf in that market. So that’s going to be a huge untapped market as that country gears up for the Olympics over the next six years. That will be a whole new market, I think, a market opportunity for golf to take hold and basically almost start from zero in a population that has a growing middle class, a growing consumer class. So I thing there are really significant opportunities for Callaway internationally, and they already have a strong presence. So I’d expect 2010 to be a much better year for the company. And at $7, I think the stock is really attractive. I like those names a lot in here; I think that they’re all poised to do better next year as the economy recovers, as hopefully employment recovers and consumer confidence goes up. All three of them obviously will be pretty tied to trends in consumer confidence over the next 12 months or so.

Changes in content distribution and a continuing push toward digital entertainment consumption have resulted in “some fairly disruptive and probably negative forces” on the more traditional distribution of certain products, such as home video, according to RBC Capital Markets Analyst David Bank.

“This is an issue of the value of content, and we are seeing them in all different kinds of ways from the media conglomerates,” said Bank, an equity research managing director at RBC. One example: Bank predicts a role-reversal will take place between broadcast networks and cable systems, in which the former will demand carrier fees from distributors.

“The other complication in this issue is something called “search and discovery.” So you could ultimately decide that you want to bypass the traditional distribution mechanisms to get your content out there, and maybe arguably control more of your destiny and keep more of the dollars,” Bank said. “But without the window of traditional media, how does your content ever get found? You may create ‘Desperate Housewives,’ but if it’s not on ABC (DIS), its on some esoteric cable distribution outlet or on Netflix (NFLX) through a streaming service, how do consumers find it?”

Regarding the overhanging issue of digital content consumption, Bank sees mounting tension between companies’ desires to control and monetize their own content on a digital basis, and consumers’ willingness to pay for online entertainment. He points to Hulu as a direct case study.

“Hulu is revolutionizing the way traditional television content is being distributed, and it’s a free service that doesn’t really pay for itself on an ad-supported basis yet. So in order to survive as a stand-alone, one or two things is going to happen – spot loads have to ramp dramatically or people are going to have to pay for a premium service,” he said. “I don’t think we can answer how the consumer is going to respond yet because the consumer hasn’t really had to react to it.”