Insider-Owned Stocks Ready to Drop

Recs

1

The rationale for owning a company that is owned in large part by insiders is clear -- your interests are closely aligned with the people charged with running the company's day-to-day operations.

If all goes well, this means that management gets wealthy alongside you as the stock's share price appreciates. This is a criteria Warren Buffett looks for, and it has rewarded the early shareholders of companies like Apple (Nasdaq: AAPL) and Microsoft (Nasdaq: MSFT).

But insider ownership alone is not enough to merit a buy. In fact, even companies with high insider ownership can sometimes make good short ideas or, conversely, deep value plays.

With this in mind, I scrolled over to our CAPS screener looking for:

  • Stocks with a market cap of more than $1 billion.
  • Stocks with more than 25% insider ownership.
  • Stocks that have fallen from a three-star rating to a two-star rating (out of five) by our CAPS community since the beginning of the year.

Before I move on to the results of what I found, remember that since we started CAPS in 2006, stocks in our CAPS community ranked as three-stars matched the broad market return on an annualized basis, but two-star stocks as a group significantly underperformed the market by five percentage points, annualized! This means that a drop in a stock's CAPS rating is something to keep in mind both before and after investing in a company. It might also be a good indication to consider selling and cutting your losses.

Without further ado, the stocks I found from the above screen included:

Company

Insider Ownership

Market Capitalization

Urban Outfitters (Nasdaq: URBN)

29%

$5.3 billion

Carnival (NYSE: CCL)

29.5%

$23.3 billion

Guess? (NYSE: GES)

36.3%

$3 billion

Heartland Express (Nasdaq: HTLD)

38.8%

$1.6 billion

First Citizens Bancshares

42.5%

$1.3 billion

Tootsie Roll (NYSE: TR)

46.6%

$1.5 billion

Las Vegas Sands

53.5%

$15.8 billion

Data from CAPS as of 8/5/2008.

Agree? Disagree? Come share your thoughts with the rest of our CAPS community and check out a whole slew of long and short ideas.

What do the unfolding financial crisis and ongoing market volatility mean for your money? The Fool's here with answers. Get the best of our daily commentary and analysis in your inbox simply by entering your email address in the box below.

Adam J. Wiederman owns no shares of the companies mentioned above. Apple is a Stock Advisor recommendation and Microsoft is an Inside Value recommendation. The Fool's disclosure policy loves the CAPS screener.

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

TD AMERITRADE
more info
ShareBuilder
more info
Power E*Trade

more info
Scottrade
more info
Fool Disclosure

DocumentId: 701701, ~/articles/articlehandler.aspx, 12/2/2008 5:17:09 AM,

Sign up for FREE Motley Fool site access to keep reading:

“Insider-Owned Stocks Ready to Drop”

Signing up allows you to comment on articles and on the discussion boards.

It's completely FREE and will take only 10 seconds.

Privacy / Legal Information

We will use your email address only to keep you informed about updates to our web site and about other products and services that we think might interest you. The Motley Fool respects your privacy. Please read our Privacy Statement

.

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

What Fools Are Saying

Most Recent

Most Recommended

Market Summary

S&P 500816.21 -8.93%
DJIA8,149.09 -7.70%
NASD1,398.07 -8.95%
Updated: 4:04:56 PM
Sponsored by:

Related Tickers

Apple, Inc.

CAPS Rating 4/5 Stars

$88.93

-3.74 (-4.04%)

Outperform19234

Underperform1555

Rate This Stock