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 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 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.

A king who's in        
Regular Fools know that one of the surest signs of a healthy company is when it spits out heavy dosages of free cash flow. Intuitively, then, finding a free-cash flowing company that's also heavily owned by insiders might just be a potent recipe for success. From a distance, at least, Ambassadors Group -- which promotes educational travel programs for students -- has many of the market-beating ingredients that Fools love to chew on. Let's take a closer look, shall we?

Besides being a king of cash (with a free cash flow-to-sales margin over 35%), Ambassadors Group happens to be part of the Ueberroth family travel empire. And, as my Foolish colleague Stan Huber (a.k.a. TMFPlatoish) informs us, accomplished travel executive Peter Ueberroth continues to be Ambassador Group's largest shareholder, with his brother John serving as the company's Chairman. Peter's son, Joseph, also serves on the board.

Now, in case this corporate governance arrangement is too familial for your own blood, know that EPAX investors haven't exactly been mourning losses. In fact, ever since being spun off from Ambassadors International in 2002, the stock has delivered a whopping compounded return of nearly 50% (dividends not even included).

Of course, it never hurts if your business is benefiting handsomely from timely trends, either. Specifically, booming economic growth overseas has placed new importance on cultural education, while it seems that financially able families are more willing than ever to give their children as many advantages as possible. Since 2002, Ambassadors Group has grown revenue, earnings, and operating cash flow at a 21%, 29%, and 28% rate, respectively (with virtually no use of long-term debt). Additionally, returns on equity have clocked in consistently in the mid-30% range.

To be sure, EPAX doesn't exactly look cheap at the moment. After the stock's smoking run, the shares currently trade at a forward PEG of 1.20 and at 15 times free cash flow. Though I'd be reluctant to pull the trigger right now, Ambassadors Group is a solid insider-owned stock to keep on the watch list.

Now, here's a real inside look at CAPS ...
CAPS resident elvistmf helps us dissect Ambassador's cash-flowing business model:

Baby boomers love to give their kids whatever they can. What would be better then a trip to Europe wrapped in a coating called "Educational?" Prepaid trips mean money upfront, airfare fluctuations passed on to consumers, low overhead, small dividend (but a dividend!), cash cow.

Meanwhile, CAPS All-Star stillwater9999 shows us a consolidated angle:

One of the interesting aspects to the EPAX story is that this market is very fragmented and there may be a tremendous opportunity for EPAX to obtain a dominating position through acquisitions as well as organic growth. EPAX specifically mentions this in their 10-K. I have had some nice experiences with companies rolling up a fragmented market (e.g. POOL).

Finally, CAPS legend TMFEldrehad lets us go with a tailwind:

With today's parents wanting to give their children every possible advantage (often to the point of making their childrens' schedules more crowded than ever before), arranging travel for middle and high school students to broaden their intellectual and cultural horizons seems to be a growing business.

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.