5 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. And by winning their bets, 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 five 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:

Company

% Owned by Insiders

Key Shareholder  

CAPS Rating

Morningstar (Nasdaq: MORN  )

61%

Founder/executive chairman/CEO

*****

Marvel Entertainment (NYSE: MVL  )

37%

CEO

*****

Quality Systems (Nasdaq: QSII  )

35%

Founder/chairman

*****

AgFeed Industries (Nasdaq: FEED  )

35%

CEO/president

*****

China Precision Steel (Nasdaq: CPSL  )

45%

Chairman/CEO/president

****

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 -- like the relative inability of outside, dissident shareholders to spur changes -- so due diligence is very much required.

Top o' the Morningstar
It's no secret that we Fools are avid Warren Buffett fans. Of course, that loyalty extends to everything Buffett-like, as well. For example, it hasn't been lost on our community that investment research provider Morningstar was founded on, and is currently being shaped by, the philosophies of the Oracle himself. In addition to being a Motley Fool Stock Advisor pick, the stock recently regained its five-star rating.

Most investors know Morningstar for its outstanding analysis of mutual funds, but the idea for Morningstar came to founder Joe Mansueto while he was trying to teach himself Buffett-esque stock analysis. As his collection of mutual fund reports from legendary value investors started to stockpile, Mansueto thought it would be a nice idea to organize the info into one valuable resource. In 1984, he published the 400-page Mutual Fund Sourcebook, and the rest, as they say, is history.

Today, Mansueto continues to be the CEO and controlling owner of Morningstar -- a company widely recognized as the standard in mutual fund analysis. As CAPS All-Star weiwentg said in 2006, "Morningstar style boxes are used by just about everyone. The CEO also has ample incentive to run the company profitably."

Of course, Mansueto has steadily leveraged the brand into other areas like stock and ETF analysis, so research providers like Google (Nasdaq: GOOG  ) , Yahoo! (Nasdaq: YHOO  ) , and even The Motley Fool now compete with Morningstar.

With his laser-sharp focus on minding the moat and massive, shareholder-aligned interests, Morningstar's Mansueto is one Buffett-ite who’s certainly worth keeping track of.

In April, CAPS member TMFCaccamise had this bullish argument to share:

An outstanding CEO with a dominate position in an industry with great demand. While there is an argument that the price of [Morningstar] shares are not a bargain at current levels, I believe that sometimes you must pay up for great assets. Morningstar has these great assets in their databases and reach in the investment community. If Morningstar can execute on their strategy of integrating their products and services into all realms of the investment world, I see them becoming a much larger company in the future. If they avoid damaging their reputation in any way, and continue to move into areas such as asset management and international markets I see no reason that they cannot become a $10B company. 

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 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 insider ownership, join Motley Fool CAPS today. It's 100% free -- an insider's deal if I ever saw one.

Morningstar, Quality Systems, and Marvel are all Stock Advisor picks. Google is a Rule Breakers recommendation. The Fool owns shares of Morningstar. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. The Fool has a disclosure policy.


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