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
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 |
29% |
$5.3 billion |
|
Carnival |
29.5% |
$23.3 billion |
|
Guess? |
36.3% |
$3 billion |
|
Heartland Express |
38.8% |
$1.6 billion |
|
First Citizens Bancshares |
42.5% |
$1.3 billion |
|
Tootsie Roll |
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.
