Not many people would be happy to find out that the chef at their favorite restaurant is eating somewhere else. If this is the standard folks apply to a restaurant, it should most definitely be applied to matters of significant value: your equity portfolio.
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Do as I Do, Not as I Say
I'm not a big fan of the CEO who can talk the talk but then doesn't put his money where his mouth is. Many CEO's are excellent salesmen but poor businessmen. Companies that possess a high degree of insider ownership run the company for the benefit of shareholders because they are shareholders. The best way to invest is to have managers who both prosper and hurt right along with shareholders.
Worthwhile Considerations
Following is a list of names of companies with a high degree of insider ownership. In addition, these businesses still trade at relatively attractive valuations and possess quality balance sheets.
Spirit AeroSystems (NYSE:SPR) is a aerospace/defense company that makes such things as wing systems and propulsion systems for aircraft. It's a big supplier to Boeing (NYSE:BA) as well as the military. Shares currently command a P/E of 13 and a forward P/E of seven. Insiders own over 20%.
Huntsman (NYSE:HUN) is a specialty chemical company with products that are used to make adhesives, electronics, construction products, paints and a whole host of other basic materials. Nearly 32% of shares are held by insiders and at current prices, while the dividend yield is over 5%. To be sure, the company is loaded with debt, so anything can happen to the dividend. But with one-third of the company in the hands of insiders, you can feel comforted that they are behaving very prudently.
Another candidate is MasTec (NYSE:MTZ) a specialty contractor that builds and services utilities and telecommunications infrastructure. This $700 million company trades for less than 10-times earnings, does over $1.5 billion in sales and has a respectable profit margin of nearly 5%. Insiders own over 40%.
Think Like a Business Owner
Investing in the stock market should be viewed as what it really is: buying an ownership stake in the business. As owners in such businesses, investors are well served by having managers who are also owners. (For more, see Delving Into Insider Investments.)
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