7 Top Insider-Owned Stocks

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 -- their reputations, their careers, and, preferably, a boatload of common stock -- riding on the success of the business. Looking for high levels of insider ownership in particular makes sense for a few reasons:

• Founders and managers who "eat their own cooking" are inherently motivated to act in the best interests of the company.

• Insiders have a better sense of the prospects for their business and industry, so a high ownership stake is often a very positive signal.

• Portfolios with a high average of insider ownership outperform the market over long periods of time.

Partners for profit
After all, billionaires like Bill Gates and Warren Buffett got where they are today by betting on their own companies. 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 five) in our database:

As always, don't view these stocks as formal recommendations. There are still plenty of risks involved with heavy insider ownership -- like 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, II-VI looks like something worth peeking inside.  

Laser tagged           
Back in my pre-Fool days, I never really focused on stocks with high levels of insider ownership. In fact, it wasn't until I read about founding Fool Tom Gardner's approach to picking home run stocks -- for the market-annihilating Motley Fool Hidden Gems small-cap service -- that its importance began to sink in with me. One of Tom's big winners, II-VI (pronounced "two-six"), was founded in 1971 by Dr. Carl Johnson, who continues to be the company's chairman and largest single shareholder. II-VI is up a sweet 62% since Tom recommended it last August, but I mention it now for one specific reason: CAPS thinks it's a good time to buy -- again.

For those unfamiliar with II-VI, it uses crystal materials and optics fabrication to produce high-tech products for a wide range of applications. In other words, it makes the doohickeys needed to operate all sorts of lasers. II-VI has used its leadership position in this niche to generate compounded revenue and operating cash flow growth above 15% over the last five years. The stock itself has averaged roughly 25% yearly returns since 1990, but a recent third-quarter earnings miss sent it down 20% (about where it stands today). That's why our community is now two-stepping to two-six.

Though the company lowered its full-year guidance, many CAPS players believe Mr. Market's nasty haircut was a bit harsh. Currently, II-VI's infrared optics business is suffering from higher costs and process issues, but the company is in a pretty healthy position overall. For the quarter, II-VI posted EPS growth of 32% and has continued to generate free cash flow -- which management has generally used to buy back stock and pay down debt.  

Of course, even with the lowered stock price, II-VI still trades at a lofty P/E of 45. However, a fairly reasonable PEG of 1 might suggest that Mr. Market isn't fully appreciating II-VI's above-average growth opportunities. For a company with a long-term chart like this, I'd say any price hiccup is probably worth looking into.    

To help with your analysis, here's a pair of CAPS All-Stars with laser-sharp opinions.

SheckyGreenGame surely won't miss the boat this time: "Like many HG subscribers, I've been watching this one from the sidelines, mentally kicking myself for not jumping in when it was recommended. So, I was stunned when I saw the market overreaction today, and recognized an opportunity to get on board."

JTShideler isn't as certain as Shecky, but takes a long-term focus:

I missed this stock back in August of 2006 when it was trading in the high teens. Then, I said I'll wait for it to come back before getting in and watched in horror as it kept climbing up to the high 30's. I think I finally got my opportunity to get in with a sell off due to less than expected results. While the P/E makes me a little uncomfortable, this is a great growth stock for the future.

Now get inside, Fool
Buying a stock means becoming 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 increase 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 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.