I am a big fan of insider buying — I want insiders to have skin in the game. It just makes sense to me that the people making the decision should share in the consequences of the decisions they make.
It has been a good idea since Shylock first proposed that Antonio secure a loan with a literal pound of flesh, and it remains one today.
Nassim Taleb, a renowned trader, mathematician and philosopher, wrote a paper titled The Skin In The Game Heuristic for Protection Against Tail Events that suggests that risk can be reduced by a general concept of skin in the game. Legendary investor Walter Schloss had a preference for high levels of insider ownership in the stocks he bought for himself and his investors.
That’s a pretty diverse group of thinkers, and you can add my name to the list of fans of insider buying. I prefer to invest in companies where everybody is on the same page with the same goal — a higher stock price.
Stocks With Insider Buying: Consumer Portfolio Services, Inc. (CPSS)
Consumer Portfolio Services, Inc. (NASDAQ:CPSS) is a stock that has enjoyed plenty of insider buying. As a group, insiders own 24% of CPSS, which means more than $40 million of their own money is on the line.
CPSS buys and services subprime auto loans form a dealer network of both franchised and independent car dealerships. While it can be a high-risk business, it also is a potentially profitable one as seen by the 40% year-over-year increase in full-year earnings.
In addition to insider ownership, you have an impressive list of smart-money folks in the stock as well. Second Curve Capital, EJF Capital and Fortress Investment Group LLC (NYSE:FIG) are just three of the big funds that own shares of Consumer portfolio Services. There is a lot to like about this stock but the shares are still cheap at just 7 times earnings right now.
Stocks With Insider Buying: Universal Truckload Services, Inc. (UACL)
Universal Truckload Services, Inc. (NASDAQ:UACL) describes itself as a leading asset-light provider of customized transportation and logistics solutions throughout the United States, Mexico, Canada and Colombia. Using a fleet of contracted owner operators of trucking services, UACL hauls goods and freight for companies and handles the logistics of transporting and delivering cargoes in their service areas.
Universal has an impressive customer list that includes major auto manufacturers, Procter & Gamble Co (NYSE:PG), Wal-Mart Stores, Inc. (NYSE:WMT), General Electric Company (NYSE:GE) and the U.S. State Department.
UACL’s recently released earnings report showed flat profit growth, but over the past five years they have averaged 37% annual earnings growth. Insiders own 48% of the company and have a strong interest in seeing the business and UACL stock improve in the future.
Universal shares currently trade at just 13 times earnings, so as the economy continues to grow, UACL stock could move higher on both profit growth and multiple expansion.
Stocks With Insider Buying: Hanmi Financial Corp (HAFC)
Hanmi Financial Corp (NASDAQ:HAFC) is a Los Angeles-based bank that has 46 full-service branches in California, Texas, Illinois, Virginia and New Jersey, as well as loan production offices in California, Colorado, Texas, Virginia, and Washington.
The bank was founded in 1982 to serve the Korean community in the LA area and has grown to the become the largest U.S. bank serving the Korean community.
Business is pretty good for HAFC, with earnings up about 25% this year, and the company just reported yet another strong quarter. In spite of the strong performance the shares trade at just 14 times earnings. Insiders own 24% of the bank, so they have a vested interest in continued strong performance.
As of this writing, Tim Melvin did not hold a position in any of the aforementioned securities.