7 Companies Whose Managers Eat Their Own Cooking

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 you, 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 that 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. The more conspicuous successes include legends such as Microsoft.

Actions speak louder than words, or so I hear
A CEO or chief financial officer who's 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 stakes of 10% or greater.
  • A minimum market cap of $500 million.
  • A CAPS rating of four or five stars, the second-highest and highest possible.             

Voila! Here are some of the companies that popped out when I ran the screen:

Company

Market Cap (in millions)

% Insider Ownership

CAPS Rating
(out of 5)

ATP Oil & Gas (Nasdaq: ATPG  )

$602.9

14.9%

*****

Cal-Maine Foods (Nasdaq: CALM  )

$804.3

34.4%

****

Harbin Electric (Nasdaq: HRBN  )

$522.2

37.9%

****

IPG Photonics (Nasdaq: IPGP  )

$749.6

28.7%

*****

Morningstar (Nasdaq: MORN  )

$2,182.8

56%

*****

Quality Systems (Nasdaq: QSII  )

$1,667.8

34.3%

*****

Tredegar (NYSE: TG  )

$574.5

16.4%

*****

Sources: Motley Fool CAPS; Capital IQ (a division of Standard & Poor's).

While sizable insider 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 company 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 165,000-member investment community help you make better investing decisions.

Further Foolishness:

Fool contributor Jennifer Schonberger does not own shares of any of the companies mentioned in this article. You can follow her on Twitter. Microsoft is a Motley Fool Inside Value pick. IPG Photonics is a Rule Breakers recommendation. Morningstar and Quality Systems are Stock Advisor choices. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool owns shares of IPG Photonics and Morningstar. The Fool has a disclosure policy.


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