Successful investing is about concentrating on the factors that really count.
For us Fools, few things are more important than finding honest management teams with a whole lot riding on the success of the business -- including their reputations, their careers, and, preferably, a boatload of common stock. Looking for high levels of insider ownership in particular makes sense for a few reasons:
- Insiders have a better sense of the prospects for their business and industry, so a high ownership stake is often a very positive signal.
Partners for profit
After all, billionaires like Bill Gates and Warren Buffett are where they are today by betting on their own companies. And by winning their bet, they've made millionaires out of thousands of investors in the process.
So, with the goal of finding real insider-partners to go into business with, here are seven top stocks from our Motley Fool CAPS community. In addition to having insider ownership that exceeds 15%, these stocks have received a four- or five-star rating (out of a possible five) in our database.
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Company
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% Owned by Insiders
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Key Shareholder
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CAPS Rating
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Sauer-Danfoss (:SHS)
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77%
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Chairman Emeritus
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*****
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RPC (NYSE:RES)
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66%
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Chairman
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*****
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Cohen & Steers (NYSE:CNS)
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64%
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Co-Founder/Co-Chairman/Co-CEO
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*****
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DST Systems (NYSE:DST)
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16%
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Member of the Board
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*****
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Liquidity Services (:LQDT)
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61%
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Co-Founder/Chairman/CEO
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****
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Asset Acceptance Capital (NASDAQ:AACC)
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56%
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Member of the Board
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****
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Credicorp (NYSE:BAP)
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16%
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Chairman/CEO
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****
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Data from Capital IQ, a division of Standard & Poor's, and Motley Fool CAPS.
As always, don't view these stocks as formal recommendations. There are still plenty of risks involved with heavy insider ownership -- such as the relative inability of outside, dissident shareholders to spur changes -- so due diligence is very much required.
The CAPS stock rating represents the collective wisdom of more than 60,000 community members, so think of it as a great place to begin your stock research. With that said, Liquidity Services looks like something worth peeking at.
Network your way to the top
As a technophobe, I'd rather invest in a company that takes an already proven idea and improves on it, than betting on the original concept right from the get-go. Though Liquidity Services (LSI) -- which operates an online auction for commercial buyers -- isn't an exact duplicate of eBay, many in our CAPS community say it does have one of the most powerful competitive advantages a business can own: network effects.
Through online marketplaces liquidation.com, govliquidation.com, and liquibiz.com, LSI gives professional buyers and sellers access to a global supply of wholesale, surplus, and salvage assets. Basically, it's eBay in bulk goods. And as fellow Fool Tom Taulli outlines, LSI also adds value by managing each step in the liquidation process: from qualifying buyers and sellers, to marketing the assets, to communicating bids, to collecting and disbursing payments.
Naturally, the power of LSI's network has grown exponentially with its differentiation in the online wholesale space. The number of total registered buyers has grown at a compounded rate above 65% over the past five years, while gross merchandise volume has climbed at a 40% pace. In other words, LSI shows signs of compounding at its finest: The larger its network gets, the more attractive it becomes to prospective buyers and sellers.
Now, you'd have to decide for yourself whether LSI's wholesale niche is big enough to catapult it to eBay-like proportions, but with a market cap of just $515 million, I'd say there's still plenty of room to grow. And when you consider that co-founding CEO William Angrick owns 31% of LSI and co-founding President Jaime Mateus-Tique owns 12%, that might be reason enough to bet on continued expansion. Throw in the bullishness of all eight Wall Street firms that cover Liquidity Services on CAPS, and you've got an asset that's possibly worth bidding on.
Here are three CAPS All-Stars with an opinion:
- Fellow Fool TMFPlatoish talks competitive advantage: "Liquidity Services has just too good of a business concept and strategy to be ignored. These guys are a small cap company with a lot of room to grow. ... The company differentiates itself from most liquidation sites by providing a whole array of value-added services to the sellers including warehousing, marketing, logistics, and settlement."
- Meanwhile, wolfhounds draws a thoughtful parallel: "This company is fast becoming to unneeded industrial junk what EBAY is to ordinary junk. Its platform is widely accepted and is also catching on with government entities. Stock price has been stuck for some time as earnings continue to grow at 25-30%."
- Finally, for a bearish perspective, Jeffreyw explains his Liquidity crisis: "Opened an account and bought some stuff. This is NOT eBay! Many lots are grossly misrepresented and not worth reselling or repairing. LQDT does not hold sellers accountable and has prohibitively restrictive recourse for buyers. ... Unless they get serious about honesty and holding sellers accountable, this will be a den of thieves."
Now get inside, Fool
Buying a stock means becoming a part-owner of that business. When the people you've essentially hired to run your company are also owners, the odds of profiting from their decisions increases dramatically. Remember: Finding dedicated partners is still the secret to outsized returns.
To get the inside scoop on the ideas mentioned above, or to find even more stocks with high levels of insider ownership, join Motley Fool CAPS today. It's 100% free -- an insider's deal if I ever saw one.
Fool contributor Brian Pacampara owns no position in any of the companies mentioned. The Fool has a disclosure policy.
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