"He who wears awesome pants, stands with head high."
--
A man who calls himself Henri Jacob, the 27th viscount of Huney

I woke up this morning and realized my confidence had been waning a bit over the past few days. I knew I had to change something before I slipped into the dreaded irreconcilable funk. Thankfully, just as things were beginning to look grim, the 27th viscount of Huney darted out of the shadows to provide me with the sage advice above. And you know what -- he was right! (We do think an awful lot alike. Some say we look alike, too.) Awesome pants do make you feel better!

So that gave me a thought -- maybe I should seek out companies that "wear their own pants," that is, companies where the executives and directors have a high amount of ownership. After all, don't you think execs are more likely to take good care of the company if they have a high stake in it? Of course, tied to that ownership should be a great return on equity (ROE). "Awesome" pants, if you will.

To give you a sampling of some name-brand companies with high inside ownership that have made great returns, take a look at Campbell Soup (NYSE:CPB), Oracle (NASDAQ:ORCL), and Marvel Entertainment (NYSE:MVL). Oracle has 22.8% inside ownership and has earned a solid 27.3% return on equity over the past four quarters. Marvel, with 37.9% inside ownership, has been even more impressive, earning a whopping 71.1% return on equity! And Campbell Soup has a 48% return on equity with 44% insider ownership.

So I set up a Motley Fool CAPS screen to see if I could find companies like those to start looking into. I wanted the following:

  • CAPS rating of four or five stars, the two highest levels.
  • At least 50% below 12-month high, to move toward "being on sale."
  • Price-to-book ratio under 2.
  • More than 20% inside ownership.
  • Return on equity greater than 15%.

Below are a few of the companies the screener came up with. Click that link to rerun the screen for yourself:

Company

CAPS Rating
(Out of 5)

% Below 12-Month High

Price-to-Book Ratio

% Insider Ownership

Return on Equity (TTM)

Ark Restaurants

****

69.0%

0.92

49.1%

17.3%

Cal-Maine Foods (NASDAQ:CALM)

****

54.6%

1.73

30.3%

43.4%

Cascade 

****

65.3%

0.75

23.0%

15.0%

LSB Industries

*****

66.5%

1.40

26.8%

29.9%

ShengdaTech (NASDAQ:SDTH)

*****

70.4%

1.38

48.1%

28.5%

TBS International (NASDAQ:TBSI)

****

89%

0.36

55.3%

33.5%

VSE (NASDAQ:VSEC)

****

51%

1.71

25.8%

25.7%

Data from Motley Fool CAPS. TTM = trailing 12 months.

The good news is that we have a wide variety of companies to choose from. We have engineering and logistics management firm VSE, dry bulk shipper TBS International, Chinese chemical company ShengdaTech, and egg producer Cal-Maine Foods.

Naturally, the screen is only the first step in our search for companies with both high insider ownership and ROE. As investors, we should always dig a little deeper and find out if such a return is sustainable and what inside owners have been doing recently with their shares. Hopefully, with prices having fallen so much recently, they're not unloading. Of course, one of the first places to look is the information and opinions from other investors at the CAPS community. Run your own screen at CAPS today. And before long, you should be able to pick up a pair or two of "awesome pants" this year.

More Foolishness:

Fool contributor Jake Huneycutt is wearing extraordinarily awesome pants today and does not own shares in any of the companies mentioned in this article. Henri Jacob, the 27th viscount of Huney, is an alter ego of Jake Huneycutt, and he also does not own any shares of the companies mentioned in this article. Marvel Entertainment is a Motley Fool Stock Advisor selection. The Fool has a disclosure policy.