by Tim Melvin | June 27, 2014 11:38 am
The folks running most of the publicly traded companies in the United States don’t actually have much skin in the game. I sat down this morning and ran a quick screen to find companies where the people running the business also owned a lot of stock. Out of about 7500 stocks in my database, only 1084 had insider ownership of greater than 10% of the company. And 1048 of those stocks were less than $50 million in total market capitalization.
The executives at the larger companies seem to be more interested in cashing in on options profits than long-term ownership of the company they manage.
Legendary investor Walter Schloss preferred to own stocks in companies that traded below book value and had significant amount of insider ownership. He wanted managers and directors with skin in the game that had a vested interest in seeing the stock price move higher over time, rather than just a pop in the next quarter to get a good price to cash in their options.
Management whose interest are aligned with the shareholders are far more likely to take the sometimes difficult steps need to maximize shareholder value. I sat down this morning and looked for stocks where the people running the company had their money invested alongside investors and had a vested interest in higher stock prices.
West Marine (WMAR) is a boating and marine services retail chain with 287 stores in 38 states, Canada and Puerto Rico. The company targets the recreational boater and sells supplies, foot gear, clothing and accessories to those who enjoy the boating lifestyle.
The company has seen sluggish results as people cut back on their recreational purchases in this weak economy. They have also seen some revenue drag as they transition to more of an online presence. Founder Randolph Repass still serves as Chairman of the Board and currently owns, along with his family members and family foundation, a little more than 26% of the company. He has a strong interest in seeing that the company survives until the economy allows them to thrive and moves the stock price higher.
Shares of West Marine are currently trading at just 90% of tangible book value so WMAR stock trades at a bargain price right now.
International Shipholdings (ISH) is an Alabama-based shipping company. It owns 50 ocean-going vessels that carry everything from cars and trucks to coal and molten sulfur. The company also has 9 vessels that are flagged under the Jones Act and get shipped from one U.S. port to another.
CEO Niels Johnson and his family own a little more than 20% of the outstanding shares and are looking to run the business in a manner that unlocks shareholder value in the future. ISH stock is trading at just 50% of book value right now, so it’s clearly a bargain. As a bonus, you get paid while you wait for the business and stock price to improve as ISH stock yields a solid 4.4%.
Bottom line: Investing in bargain stocks that have significant insider ownership makes sense to me. Those running the company have the same interest in a higher long-term stock price and will be more motivated to take steps to increase the value of their holdings as well as yours.
As of this writing, Tim Melvin was long WMAR and ISH.
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