Five High Insider Ownership Stocks That Pass the Models of Investing Legends

Insider ownership – the percentage of a company’s shares held by executives, directors, and other insiders – can be a powerful indicator for investors. High insider ownership often aligns management’s interests with shareholders and may signal confidence in the company’s future prospects.

Why Insider Ownership Matters

Alignment of Interests: When insiders own a substantial portion of a company’s stock, their financial interests become closely aligned with those of outside shareholders. This can lead to more shareholder-friendly decisions and a focus on long-term value creation.

Skin in the Game: High insider ownership means executives have their own capital at risk, potentially leading to more careful and strategic decision-making.

Confidence Signal: Significant insider stakes may indicate that those with the most intimate knowledge of the company’s operations and prospects believe in its future success.

Reduced Agency Costs: With greater ownership, there’s less incentive for management to engage in activities that benefit themselves at the expense of shareholders.

5 Stocks Combining High Insider Ownership and Strong Fundamentals

We ran a list of high insider ownership stocks through our 22 guru models, which are based on historically successful investors like Warren Buffett and Peter Lynch, to see which scored the highest. Here are the top 5 stocks.

1. United States Lime & Minerals Inc (USLM)

Business: United States Lime & Minerals is a manufacturer of lime and limestone products, supplying industries such as construction, steel production, and environmental services.

Insider Ownership: 63.36%

Fundamental Strengths:

Consistent earnings growth: EPS has grown from $0.93 to $2.61 over the past 5 years
Strong profit margin: 27.91% trailing 12-month profit margin
Solid return on equity: 21.2% ROE
Low debt: 0% debt-to-equity ratio
Positive free cash flow: $1.87 per share

Model Performance:

Twin Momentum model (100% score): USLM’s 12-month minus 1-month return of 70.74% ranks in the top 7% of stocks, indicating strong price momentum.
P/E Growth Investor model (91% score): With a P/E of 30.42 and a growth rate of 32.26%, USLM’s PEG ratio of 0.94 is considered favorable.
Motley Fool-inspired model (83% score): USLM passes criteria for profit margin, relative strength (95), and insider ownership.

2. Pilgrim’s Pride Corp (PPC)

Business: Pilgrim’s Pride is a leading producer of fresh and value-added chicken and pork products.

Insider Ownership: 82.62%

Fundamental Strengths:

Strong earnings growth: 31.9% average EPS growth over past 3-5 years
Solid profit margin: 24.36% trailing 12-month profit margin
Positive free cash flow: $3.24 per share
Attractive valuation: P/E ratio of 19.94

Model Performance:

Twin Momentum model (94% score): PPC’s fundamental momentum (6.10%) and price momentum (56.61% 12-month minus 1-month return) are both strong.
Quantitative Momentum model (94% score): PPC’s 12-month minus 1-month return ranks in the top 9% of stocks.
P/E Growth Investor model (72% score): PPC’s PEG ratio of 0.63 is considered favorable, indicating growth at a reasonable price.

3. Dillard’s Inc (DDS)

Business: Dillard’s operates retail department stores primarily in the Southwestern, Southeastern, and Midwestern United States.

Insider Ownership: 19.56%

Fundamental Strengths:

Strong earnings growth: 59.0% historical EPS growth rate
Attractive valuation: P/E ratio of 9.1
Solid return on equity: Average ROE of 16.4% over the last ten years
Strong free cash flow: $3.24 per share

Model Performance:

Price/Sales Investor model (90% score): DDS’s P/S ratio of 0.95 falls within the “good values” range for non-cyclical companies.
Earnings Yield Investor model (90% score): DDS’s earnings yield of 14.50% ranks it 88th among stocks in the database.
Acquirer’s Multiple model (89% score): DDS has an Acquirer’s Multiple of 6.9, ranking it in the 6th percentile of the database.

4. Garmin Ltd (GRMN)

Business: Garmin designs and manufactures GPS navigation and wireless devices for automotive, aviation, marine, outdoor, and sports activities.

Insider Ownership: 19.56%

Fundamental Strengths:

Consistent profitability: Positive earnings for each of the last 10 years
Strong return on equity: Average ROE of 17.2% over the last 3 years
Solid cash flow: Cash flow from operations to assets ratio of 17.47%
Low volatility: 3-year standard deviation of returns of 26.5%, below the market median

Model Performance:

Multi-Factor Investor model (93% score): GRMN passes criteria for market cap, volatility, and combined ranking of momentum and net payout yield.
Patient Investor model (86% score): GRMN shows consistent earnings, strong ROE, and good use of retained earnings.
P/B Growth Investor model (88% score): GRMN passes tests for return on assets, cash flow, and consistency in profitability.

5. Southern Copper Corp (SCCO)

Business: Southern Copper Corporation is an integrated copper producer with mining, smelting, and refining operations in Peru and Mexico.

Insider Ownership: 89%

Fundamental Strengths:

Strong profitability: 14.50% return on assets
Solid cash flow: Cash flow from operations to assets ratio of 18.19%
Consistent performance: Return on assets variance of 13.49%, well below industry average
Capital investment: Capital expenditures to assets ratio of 6.00%, above industry average

Model Performance:

Twin Momentum Investor model (94% score): SCCO’s fundamental momentum (10.55%) and price momentum (35.25% 12-month minus 1-month return) are both strong.
Multi-Factor Investor model (93% score): SCCO passes criteria for market cap, volatility, and combined ranking of momentum and net payout yield.
P/B Growth Investor model (77% score): SCCO passes tests for return on assets, cash flow, and consistency in profitability and sales growth.

While high insider ownership alone doesn’t guarantee investment success, it can be a valuable factor to consider when evaluating potential stock investments. When combined with strong fundamental and quantitative characteristics, as identified by Validea’s guru-inspired models, stocks with significant insider stakes may offer attractive opportunities for long-term investors.