For Immediate Release
Chicago, IL - December 7, 2011 - Today, Zacks Investment Ideas
feature highlights Features:
Kronos Worldwide, Inc.
(
KRO
),
MSC Industrial Direct Co., Inc.
(
MSM
),
AmTrust Financial Services, Inc.
(
AFSI
) and
Syntel, Inc.
(
SYNT
).
4 Stocks with Large Insider Ownership
One of the main principles of economics is this:
people respond to incentives
. As a shareholder, you should know how the people running your
business are being incentivized.
In other words, are the executives being paid astronomical
salaries and overly-generous bonuses regardless of business
performance? Or do they have a vested interest in the long-term
value of the company?
You want the people running your business to have some skin in
the game. And I'm not just talking about a few stock options.
Ideally, you want a decent chunk of their net worth tied up in the
long-term value of the company through significant stock
ownership.
This will tell you whether or not their incentives are truly
aligned with yours as a shareholder. When they're making business
decisions, are they more concerned about a fat bonus check or the
long-term creation of shareholder wealth?
Long-Term Incentives
Executives with a lot of personal wealth tied up in the company
are motivated to do what's best for the business over the
long-term. They are more likely to forego short-term gains at the
expense of long-term value.
Rather than push through a questionable deal, for instance,
because of some vague "synergies" that may or may not materialize,
owners will consider whether or not real value is being created
over the long-term. But an executive who is compensated by hitting
quarterly EPS targets will likely push the deal through even though
it may be a poor use of capital and destroy value in the long
run.
This principal-agent problem is a concept we've all seen before.
Think about the kind of service you typically get at a big box
retailer compared to the service of a small business owner. Let's
be honest, the hourly worker doesn't care whether or not you come
back or if you refer friends and family to their store. The
business owner does. Why? Because they have a long-term
interest.
Do the people on the inside have a vested interest in the
long-term value of the company? It's an important item to consider
when evaluating a stock to buy.
Here are 4 companies with a large portion of insider
ownership:
Kronos Worldwide, Inc.
(
KRO
)
Kronos manufactures titanium oxide pigments. TiO2 is a fine
white powder used in products like paints, plastics and paper to
give them maximum whiteness and opacity. Insiders own more than 80%
of the company, most of which is held by Chairman of the Board
Harold Simmons. Another good sign: no insider has sold any shares
over the last 12 months. In fact, insiders have bought more than
$12 million worth of stock in the last year.
MSC Industrial Direct Co., Inc.
(
MSM
)
MSC is one of the largest direct marketers of industrial
supplies and equipment used primarily in metalworking and
maintenance, repair, and operations products. Over the last 10
years, MSC has seen average revenue growth of 9%, average EPS
growth of 19%, and steadily rising returns on invested capital.
Maybe that has something to do with the fact that insiders own more
than 90% of the company.
AmTrust Financial Services, Inc.
(
AFSI
)
Amtrust Financial is a property and casualty insurance company
specializing in coverage for small- to mid-sized businesses. All
executive officers and directors together own more than 60% of the
company. Founders George and Michael Karfunkel still serve on the
Board of Directors and together with CEO Barry Zyskind, own and
control the majority of shares outstanding. It's also worth noting
that they do not receive any compensation for serving on the Board
of Directors.
Syntel, Inc.
(
SYNT
)
Headquartered in Troy, Michigan, Syntel provides Information
Technology (
IT
) and Knowledge Process Outsourcing (KPO) solutions. Revenue has
grown at a healthy 12% average clip over the last decade while EPS
has grown at a remarkable 30% average rate over the same period.
The company also carries no debt. Chairman of the Board Bharat
Desai co-founded Syntel in 1980 with his future wife Neerja Sethi,
who still serves as Vice President of Corporate Affairs. Together
they own more than 62% of the company.
The Bottom Line
When evaluating a stock, it's important to know whether or not
the interests of the company's executives are aligned with yours.
And when it comes to running a business, nobody cares as much as an
owner.
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AMTRUST FIN SVC (
AFSI
): Free Stock Analysis Report
KRONOS WORLDWD (
KRO
): Free Stock Analysis Report
MSC INDL DIRECT (
MSM
): Free Stock Analysis Report
SYNTEL INC (
SYNT
): Free Stock Analysis Report
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