You know that small companies with highly dedicated management outperform large caps on a regular basis. I'm here to take that thinking one step further: What if we look at management teams that not only own a large amount of their own company's stock, but are still buying more?

Here's a look at stocks that fit that profile: zero long-term debt, at least 20% insider ownership, and more than $500,000 in net insider buys over the last six months, according to Capital IQ:


Market Cap

Net Value of Shares Bought by Insiders

CAPS Rating
(out of 5)

Quality Systems (NASDAQ:QSII)

$1.73 billion



Werner Enterprises (NASDAQ:WERN)

$1.49 billion

$5.04 million


Barnes & Noble (NYSE:BKS)

$1.01 billion

$84.14 million


Maiden Holdings (NASDAQ:MHLD)

$495 million

$1.06 million


Interactive Intelligence (NASDAQ:ININ)

$343 million



Source: Capital IQ, a division of Standard and Poor's. Includes amounts paid to exercise stock options and certain other non-open market transactions.

This strategy of buying small companies with positive insider stock-buying activity has produced market-trouncing returns in the past. For example, buying $1,000 each of the 12 stocks that met my criteria last July would have you sitting pretty on a 38% return today, far above the 23% generated by the S&P 500 benchmark.

I guess it's true: When business leaders put their money where their mouths are, we should pay attention.

Let's start from the top
With that in mind, let's take a closer look at some of the research candidates our little screen ferreted out.

The extremely modest buying activity in Quality Systems hardly merits more than a once-over with the spyglass. This longtime Motley Fool Stock Advisor recommendation has many other things going for it, like a rock-solid balance sheet and plenty of government spending coming up in its core health-care information market. Besides, most (though not all) of the so-called insider buying here comes from exercising stock options at bargain-basement prices, which hardly qualifies as taking a real stake with confidence and chutzpah.

At trucking company Werner Enterprises, though, it's a much different story. Chairman and founder Clarence Werner invested $8.2 million of his own money in the company in November, buying stock on the open market. Including shares held by trusts, he now controls 32% of his company's stock and seems plenty interested in buying more. Given that the share price has gained almost 50% in the last year and more than 10% since Mr. Werner made his latest round of investments, I say this might be just the beginning for the stock. That one-star CAPS rating is starting to look downright preposterous.

Take a look -- it's in a book!
Ostensibly, the largest vote of confidence comes from Barnes & Noble insiders, but it's a bit of a mirage. The management team and board of directors here are actually net sellers of B&N stock -- but an outside investor just doubled its already sizable stake in the company and is now reported as an insider under the SEC's reporting rules.

The masked outside-insider in question is equity investment firm Yucaipa Companies. It typically specializes in grocery chains like Whole Foods Market (NASDAQ:WFMI) and Great Atlantic & Pacific Tea (NYSE:GAP), but evidently developed a soft spot for the coffee shops inside the bookstores.

I suppose it isn't entirely crazy to call Yucaipa a real insider -- the firm said in its SEC filing that it has issues with how Barnes & Noble enforces its corporate governance policies. Yucaipa has the clout to make a difference and the intention of addressing the issue at the next shareholder meeting. That kind of activist investor, shaped in the Carl Icahn mold, can actually help in improving a business.

Terrific trucks
I'm an Iron Maiden fan, but I don't know much about Maiden Holdings, which is a reinsurance business. I don't follow the sector, but I'd love to hear your thoughts in the comments below.

Interactive Intelligence, on the other hand, is right up my alley. Maybe it's up yours, too. This innovative company sells call-center software to businesses worldwide, and it seems poised for a breakthrough as Internet-based voice call technology is finally coming into its own. That's where Interactive Intelligence makes its bread.

Founding chairman and CEO Donald Brown owns just less than a quarter of Interactive Intelligence shares, but it's prominent board member Mark Hill who is making the moves right now. Hill is the chairman of the Compensation & Stock Option and Corporate Governance & Nominating committees, and he has been a board member since 2004. Hill's holdings have risen sharply lately, and although much of the rise comes from a trust-related strategy, he has also plunked down more than $250,000 of real cash in fresh shares.

When someone with as much insight into the company's inner workings and future prospects as this multi-committee chairman casts a vote of confidence straight from his own wallet, I sit up and take notice. If you didn't love Interactive Intelligence for its squeaky-clean balance sheet or its unique market position, maybe you'll take a look now. This could be the next million-dollar penny stock.

What it all boils down to
As you've seen here, screening for insider trades can be tricky -- but it can also be very rewarding. These five stocks are not official recommendations (except where noted, of course), but they do form an excellent starting point for more research.

If you know of any big-spending business managers, you should spread the word with a quick note on the company's CAPS page. It's fun, it's free, and it'll help you lose a few inches around the waist.

OK, Fool contributor Anders Bylund was kidding about the weight-loss thing. He holds no position in any of the companies discussed here. Interactive Intelligence is a Motley Fool Rule Breakers selection. Quality Systems and Whole Foods Market are Motley Fool Stock Advisor picks. Try any of our Foolish newsletters today, free for 30 days. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.