I don't know about you, but my mother always made me the guinea pig when it came to taste-testing her food for dinner parties.
I didn't mind helping my mother out. But when it comes to investing, it's smart to pick out companies whose leaders are willing to eat alongside me, as it were, by owning a big equity stake in the company. And I'm not talking about options, either. Managers who own real shares, right now, are more likely to have strong incentives to ensure the company remains on solid financial footing and maintains a proper strategic focus.
After all, some of the best companies in the world have historically exhibited high levels of insider ownership and strong, visionary leadership: Some of the more conspicuous successes include legends like Microsoft and Berkshire Hathaway.
Actions speak louder than words, or so I hear
A CEO or CFO buying up shares clearly believes in the future of the company. On the flip side, while selling is sometimes a negative signal, it could simply mean that the executives need a few bucks for personal expenses.
To identify potentially rewarding stocks with huge insider stakes, I used the Motley Fool's CAPS screening tool to search for companies with:
- Insider ownership stake of 10% or greater.
- Minimum market cap of $500 million.
- CAPS rating of five stars, the highest possible.
Voila! Here are some of the companies that popped out when I ran the screen today:
|
Company
|
Market Cap
|
% Insider Ownership
|
|
Alliance Holdings (Nasdaq: AHGP)
|
$1.2 billion
|
68.4%
|
|
Clean Energy Fuels (Nasdaq: CLNE)
|
$771 million
|
35.9%
|
|
Hornbeck Offshore Services (NYSE: HOS)
|
$642 million
|
11.8%
|
|
IPG Photonics (Nasdaq: IPGP)
|
$610 million
|
47.2%
|
|
Leucadia National (NYSE: LUK)
|
$6.2 billion
|
21%
|
|
Quest Software (Nasdaq: QSFT)
|
$1.5 billion
|
33.1%
|
|
SEI Investments (Nasdaq: SEIC)
|
$3.5 billion
|
26.3%
|
Source: Motley Fool CAPS.
While sizable inside ownership can be an indicator that the company you're invested in is in good hands, it should be only one of the criteria you use to screen for winning stocks. Remain mindful of the stock's valuation, fundamentals, and growth prospects. And in this economic environment, pay special attention to the sectors in which the stock you're considering operates. Even managers who run their companies with the best of intentions can get bulldozed by macroeconomic forces.
If you're interested in seeing some other tasty stocks, check out Motley Fool CAPS today! Let the collective wisdom of our 140,000-member investment community help you make better investing decisions.
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