Insider-Owned Stocks Ready to Drop
By
Adam J. Wiederman
August 6, 2008
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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
|
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Urban Outfitters (Nasdaq: URBN)
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29%
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$5.3 billion
|
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Carnival (NYSE: CCL)
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29.5%
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$23.3 billion
|
|
Guess? (NYSE: GES)
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36.3%
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$3 billion
|
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Heartland Express (Nasdaq: HTLD)
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38.8%
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$1.6 billion
|
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First Citizens Bancshares
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42.5%
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$1.3 billion
|
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Tootsie Roll (NYSE: TR)
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46.6%
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$1.5 billion
|
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Las Vegas Sands
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53.5%
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$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.
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